Apple licensed the instruction set architecture from ARM. What this means is that Apple agreed to implement the instruction set (but may implement instructions outside the instruction set).There's many different implementations of ARM, and just because Windows works on Microsoft's ARM doesn't mean it will automatically work with Apple's implementation of ARM.
So, M1 is binary compatible with ARMv8.4 (or lower ARMv8) code. Microsoft has nothing to do with it.
The possible difficulties arise from device drivers (including boot) in virtual environments.