Ack on XQuartz being crap (thought it does have Retina support these days, at least for non-rootless mode), but this is not really a problem of the VM.
Example: I type code ./somefolder in WSL and it opens VSCode on Windows, editing the folder I specified.
Edit: danieldk replied just before me, but I think my answer adds to that instead of just duplicating danieldks.
Also danieldks answer highlights something important: it doesn't seem to be just magic shell wrappers (or if it is they are truly magic).
VSCode is somewhat special when it comes to editing files, Notepad is not.
Whoops, typo. Windows programs from Linux, I'll fix that.
You can mount other host filesystems from inside the VM in any hypervisor I know of.
In most hypervisors you can't do a
notepad.exe foo.txt
TextEdit.app foo.txt
Isn't that just a binary loader, like you can do with wine/qemu on any Linux? Surely it's mostly just proxying the pipes, replicating the working directory, and maybe keeping some of the environment variables. The filesystem integration seems like the trickiest part of that altogether.