Microsoft actually already has a linux distro of their own for internal use. So they're partway there.
As far as I know, it's the only Linux distro that requires Windows and VS in order to build it.
The system distro is where all of the magic happens. The sytem distro is a containerized Linux environment where the WSLg XServer, Wayland server and Pulse Audio server are running.
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The system distro is based on the Microsoft CBL-Mariner Linux. This is a minimal Linux environment, just enough to run the various pieces of WSLg. For details on how to build and deploy a private system distro please see our build instructions. [0]