What worked for me was a simple restart, as suggested by the message.

Line in particular:

"The system may need to be restarted so the changes can take effect"

So, I restarted. 10 or so seconds after sign-in, a pop-up window appears:

But in my case, this was a dud! So I proceeded to install a distribution the normal way, using:

1. wsl --list --online to list the available distros.
2. wsl --install -d <DistroName> where represents an option from the list.

In my specific case, I wanted to install Ubuntu which apparently was already installed, but re-installs and launches anyway.