Fixed WSL2: Virtual hard disk files must be uncompressed and unencrypted and must not be sparse

If you encounter this:

PS C:\WINDOWS\system32> wsl.exe --set-version Ubuntu-20.04 2

Conversion in progress, this may take a few minutes...

For information on key differences with WSL 2 please visit https://aka.ms/wsl2

The requested operation could not be completed due to a virtual disk system limitation.  Virtual hard disk files must be uncompressed and unencrypted and must not be sparse.

Try either way:

1.

running those two commands:

fsutil behavior set disableencryption 1
fsutil behavior set disablecompression 1

And reboot.

Or

2.

Go to the Ubuntu directory in your profile folder (something like %USERPROFILE%\AppData\Local\Packages\CanonicalGroupLimited...), right click on "LocalState", Properties, Advanced, deselect "Compress contents" and "Encrypt contents". 

You can choose "Apply changes to this folder only.