Yeah, ARM32 is not binary-compatible with ARM64, though almost all the ARM32 instruction set can be converted to ARM64 equivalents word-for-word (the M1 almost certainly does not have any ARM32 logic). There are quirky differences, though. The biggest one is the out-of-order execution that can, in theory, result in miscommunication between cores. Intel-translation Mac apps are slightly hamstrung by the ordering restriction, which tends to result in reduced performance (unless they are built from llvm-ir files from the App Store).
Rosetta2 can translate object code because it is constructed for MacOS – it is not designed to handle the system protocols that Windows uses, so a Parallels would have to use some other scheme, either straight emulation (slow) or a different translator (probably not an easy piece of coding/debugging). It may happen in the future. Or, perhaps, we will be able to move on to better stuff.