well, you cant actually "destroy" local-zfs-newt as it doesnt actually exist. it points to rpool/root/pve-1, which your storage local-zfs does as well. if you remove "local-zfs-newt," everything that is on it will still be on zfs-local. Thats what I meant by it serving no purpose.remove local-zfs-newt from storage.conf or destroy it? wouldn't I lose all my data?
usually true, but not in this case. All you'd have to do is edit any affected vmid.conf to replace "local-zfs-newt" with "local-zfs."Deleting a storage won't destroy the data but you won't be able to access them anymore. So yes, you should move the disks first or back the guests up.
I would still advise NOT to have your vmstorage on a child dataset of your os installation.