I just started my Windows 11 ARM VM and when I went to Windows update this popped up: 2021-12 Cumulative Update for Windows 11 for arm64-based Systems (KB5008215) Don't know what - if anything - it fixes. Hopefully the Xbox app issue!
Installed update. Reinstalled Parallels Tools. Did it fix the issue with the Xbox App - nope. Did it fix the issue with the Xbox Wireless Controllers - nope. Not sure what it fixed or whether or not Parallels needs a new update to take advantage of what the Windows update did or didn't do.