Does this work with Windows VMs?

No, it’s challenging to implement that because it’s basically using the same GPU drivers in the guest as in the host. To be clearer, the AMD kernel drivers on the host and Mesa userspace drivers in the guest.

I’m far from an expert but from my understanding either the official Windows drivers would need to implement some sort of compatibility layer, or Mesa would need to be ported to Windows. There’s some progress on the latter but probably a long way off.

Venus, which only translates Vulkan, might be a bit simpler to port to Windows (and should support Nvidia and Intel too) but it’s a bit slower most likely and you wouldn’t get compute and video decoding/encoding etc.