Adding args: -cpu 'host,arch_capabilities=off' to config file of virtual machine (under /etc/pve/qemu-server/) indeed solved the problem. I had to download KB5063060 from Windows Catalog manually to reinstall it. After reboot, Windows shows OS Build 26100.4351 and KB5063060 is listed on update history as succefully installed.The following settings resolved the "Unsupported Processor" issue:
args: -cpu 'host,arch_capabilities=off'
The following flags seem to be set when the CPU is host.
They were not present when using EPYC-v4 or physical installation.
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