I added this to the configuration and this fixed the issue:
raw.qemu: >-
-cpu host,hv_relaxed,hv_vapic,hv_spinlocks=0x1fff,hv_vpindex,hv_runtime,hv_crash,hv_time,hv_synic,hv_stimer,hv_tlbflush,hv_ipi,hv_reset,hv_frequencies,hv_reenlightenment,hv_stimer_direct,hv-no-nonarch-coresharing=auto
Source: Windows 11 with Hyper-V on Proxmox.
The VM now starts and wsl2 withing Windows Server 2022 seems to be functional.
This could work for you too @advait1306