Hi SolarTorch,
Running your primary Windows 11 boot drive on ReFS is exactly what is causing this issue. The error 0x8000FFFF (Catastrophic Failure) happens because the Windows Component-Based Servicing (CBS) engine—which handles turning Windows features like Hyper-V and WSL on or off—is hard-coded to rely on specific NTFS file system transactions and hard links. Because booting the client OS from ReFS is still technically an experimental and unsupported configuration, the servicing stack crashes when it tries to unpack and link those feature packages on an ReFS file structure.
Unfortunately, there is no command-line workaround or registry hack to force these features to install on an ReFS boot drive. To run Hyper-V and the Windows Subsystem for Linux, your C: drive must be formatted as NTFS.
However, you can absolutely keep your secondary data drives formatted as ReFS to store your virtual machines and WSL virtual disks. In fact, storing VMs on ReFS is Microsoft's recommended best practice to take advantage of block cloning performance!
I hope this validates your troubleshooting and saves you from spending hours trying to fix a hard-coded OS limitation. If this answers your question, please consider clicking "Accept Answer".
Tracy.