For the easy option / question - do you have bitlocker enabled? That’s not enough?

Do you want the encrypted folder to be automatically-unlocked or unlocked with a password

You can build your own Linux kernel for WSL, I haven’t done it and unless that sounds like fun to you that’s not the route I’d go.

Not sure if the Linux crowd can answer this Windows question.

I think this might be possible with WSL2, which is more of a VM type instance, but WSL1 has issues with kernel modules and some networking stuff due to how it integrates with Windows

I've read that systemd-homed can do encrypted home directories but I haven't tried it, much less on WSL but that may get you to achieve the encrypted home directory at least.

Personally I don't think I would have a need to encrypt all of WSL, but maybe that also makes sense for your case.

ArchWiki example: https://wiki.archlinux.org/title/Systemd-homed

Would it not be encrypted if you just encrypt your windows drive with bitlocker? Seems kinda redundant to double encrypt to me

Yes.

You'll just boot up into a blank home folder and a completely uncustomized bash (or whatever your default shell is).

After mounting you'll have to restart your shell or source your .${SHELL}rc