And there has been no indication from Microsoft that they will do that.
Except that licensing Windows to users and equipment makers (including ARM Windows) is part of Microsoft's core business model, so it is a bit of a poser as to why they
wouldn't do that, given that the installed base of M1 Macs is quickly going to rival, and probably overtake, that of ARM-based Windows machine like the Surface X.
NB: They don't have to release a consumer version of Win 10 on ARM - just treat Parallels (or whoever) like any other OEM making an ARM PC: I'd expect to see a Parallels/Windows bundle, or Windows as some sort of in-app purchase in Parallels. That's pretty much what happened in the olden days with SoftWindows on PPC.
I think many people are confused about the difference between emulation and virtualization.
...and others underestimate how much overlap there is between the two, especially today when many "emulators" use just-in-time code translation rather than modelling the guest CPU in software. Last I looked, even hardware-assisted virtualization relied on a certain amount of code translation - and things like the intel VT-x extensions (and their ARM equivalents) simply made that more efficient & solved security issues. Both virtualisation and emulation need similar paravirtualised drivers and software emulation of compatible peripherals, virtual discs, virtual networking etc.
If you look at the open source QEMU application, for example, it supports multiple "engines" for hardware-assisted virtualization
and emulation/translatation - as well as an application emulation mode that works a bit like a "Rosetta for Linux".
there is no reason to think parrallel would emulate an x86-64 processor. it's not an emulator; it's a VM.
...which - although it would need the non-trivial addition of an x86-to-ARM code translator - already handles a lot of the other functionality needed for an emulator, giving Parallels and VMWare a head start.
Actually, it's highly likely that the actual hardware-assisted-virtualisation work will be handed off to the "Hypervisor Kit" built into MacOS - that's already an option in Parallels on Intel (used by the App-store friendly version) and it might be the only choice on Parallels for M1.
Also, I think the only thing Apple have said about Rosetta and virtualisation is that it won't run existing Intel versions of Parallels/VMWare etc. because, basically, DUH! Theres no reason that Apple couldn't use/license Rosetta technology as part of an emulator - it depends on how much importance Apple places on the ability to run Windows.
However, the best way of running x86 Windows apps is likely to turn out to be running Windows 10 for ARM and using its own x86 emulation (unless there's some technical reason why that is impossible - and I don't think anybody here knows for sure). Also, MS still seem to be serious about Windows on ARM and the range of native software
is improving.