Using Docker in a VM on a Hypervisor is industry standard, using docker inside of docker may be okay for CI purposes but I wouldn't do anything more than that in production if it's not necessary.

The stack from the image above (Windows>WSL> Docker>Minikube>Docker>App) is something you'd use on a dev machine (not a "real", production-like test environment), in which case you don't really care about the performance loss