That error comes from Windows’ WSL service rather than from Cursor: Wsl/Service/E_UNEXPECTED (“Catastrophic failure”) means wsl.exe refused to start the command Cursor asked it to run, before anything ran inside your Linux distro. The part of Cursor that connects to WSL hasn’t changed in this update, and this error usually means WSL itself got into a bad state (often after sleep or hibernate, or a pending Windows or WSL update), so the timing with the update is most likely coincidence.
These usually clear it, in order:
Quit Cursor completely.
In PowerShell, run wsl --shutdown, wait a few seconds, then reopen Cursor and connect to WSL again.
If wsl --shutdown itself errors, or the connection still fails, restart Windows.
Run wsl --update, then wsl --shutdown again, and reconnect.
To check whether WSL itself is the problem, run wsl -d <your distro name> echo ok in a plain PowerShell window (outside Cursor). If that fails with the same error, the WSL service is down and the steps above (or a reboot) are the fix.
If wsl works fine on its own but Cursor still can’t connect, please reply with the output of wsl --version and the WSL log from Cursor’s Output panel (View > Output, then pick “Remote - WSL” in the dropdown) so we can dig in. This also looks like the same error as this earlier thread.