The issue is that enabling systemd somehow alters /proc/sys/fs/binfmt_misc/
The file (or filelike??) entry WSLInterop.conf
goes missing.
I've re-written the answer here rather than just linking as the original reference thread is getting rather long and has dead links. The oneliner elimiates that problem.
The solution (from here) is to replace that file. Windows executable files start with the two letters MZ
The following tells Linux what to do when trying to run files that start with those letters.
sudo sh -c 'echo :WSLInterop:M::MZ::/init:PF > /usr/lib/binfmt.d/WSLInterop.conf'
sudo systemctl restart systemd-binfmt