I did a reset and now update works which shows that the OS must be a mess.
And even better it didn't keep the full user account, wiping my Debian AppData directory. Interesting, given that the reset options tells you categorically that it will keep your user account. Windows is more than just a few docs in a Documents directory.
To me, this is ridiculous. And why is WSL even putting stuff in a directory subject to resetting.
Linux on Windows has come a long way but this stuff should be simple. You should be allowed say what directories to retain from Users directories also. This is a flaw.
Previously I tried about 10 different procedures to perform the windows update. I've no idea why it stopped working on Dec 15th 2020. The whole thing is so adhoc.
4 hours of wasted time and 60Gb of lost data in the process... Well done....