I was able to fix it with the following steps:
Moved both AVHDX and VHDX images to Win Server 2016
Opened AVHDX with Edit Disk and relinked it from the Hyper V manager
Created a new instance with the VHDX as main drive (since AVHDX cannot be added at this step) !!! important: do not start it !!!
Edit the machine drive and replace the VHDX with the AVHDX
In case other people encounter the same issue.
I do not understand why things a re happening, but I found a workaround.
When the display freezes
I press Ctrl-Alt-F1 (switch from the X-display to a text console)
I login as the same user as for my X session
I use ps to identify a process xfce4-screenssaver
I kill this process
I press alt-F7 to go back to my x-...
It does not work if you have bit older CPU. I tried recommended solution that suggests enabling wsl 2 and disabling hyper v and some other windows features, and restarting pc, and none helped. Yes I used Windows 21H1 and last version of VMWare Player. But Oracle VirtualBox works without problems. So no need for XSAVE support in processor! Looks like ...
Let's start with a note that WSL2 is running in a virtual machine (whereas WSL1 did not). It makes use of some of the underlying features of Hyper-V, but it is not Hyper-V. However, since they use the same hypervisor, they can coexist happily, unlike some other VM platforms.
WSL2 is not, however, a virtual machine platform like Hyper-V where you can create ...
WSL and Hyper-V (or VMware) are two different things.
WSL is a facility to permit running Linux Commands in Windows. The GUI interface also helps manage documents and things you may wish to do. But it is not a full fledged Virtual Machine and does not function like one.
Notably the WSL interface is owned by the WSL terminal and cannot be restarted or shut ...