Hello,
You can do it, I am running Service Studio on the Parallels tech preview on the M1.
The thing is, you are running a build of windows 10 ARM that does not have x64 and x86 emulation. I had the same problem. I assumed the stable build had the emulation layer needed to run Service Studio. It does not. For that to happen, inside the Windows 10 VM you need to flag yourself to fetch updates from "the dev Channel".
Only the build 21277 has the emulation you need to run Service Studio on ARM and that build is only available through the DEV channel, and needless to say, it's flagged as unstable.
Yet, I had no issues so far.
P.s - This is where you flag yourself for the Dev Channel. As soon as you flag yourself for the Dev Channel, go to windows update, check for updates, it will suggest you to download the build 21277~. Install it and run Service Studio. Have fun.

Hope it helps.