VMware Fusion: 12.1.0 (17195230)
host OS: macOS 11.2.1
guest OS: macOS 11.3b2

I thought 11.3b2 already had the fix to check for lack of free space. Also that would be surprising as this vm has been used for a while and previous macOS 11 betas along 11.0.1 etc all updated fine.

As we have at least one other user running into this, it feels as if it is not an isolated local problem.