Here's an update: After uninstalling VMware Fusion Tools, rebooting, BSOD is still happening. 

Also, I've migrated this Guest OS to Parallels Desktop on Big Sur, enabled nested virtualisation: No problem. I installed ubuntu on WSL2 and so far no issue.

My assessment so far: The problem seems to lie with VMware Fusion (and perhaps how it integrates with Apple's Hypervisor Framework?) and not VMware Tools.