I’m still having issues with this too, I had to switch back to VSCode a few months ago because compatibility with WSL completely broke. I just updated to the latest version of cursor to see if it was finally fixed and it still isn’t.
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I was finally able to fix this! I had to completely uninstall cursor. Not just through the regular uninstall method, but by also removing the .cursor and .cursor-tutor folders in my user folder and the cursor folders in various AppData locations (I searched inside of AppData to find them).
Once I did this and reinstalled the connection with WSL works again
I followed your steps, uninstalled everything, and even tested on a freshly installed PC. Unfortunately, WSL still isn’t working. This error keeps happening repeatedly. Isn’t there any quality control in place? 
I solved this by uninstalling everything like @JasonHassold documented here, then starting cursor from cmd.exe.
WSL is my default shell.
Any attempt to start it from the windows start menu (or from WSL) was met with failure otherwise.
Yep correct.