The VM runs in the host's ring 3, but the VM has virtual rings of its own. Removal of 32-bit ring 0 support including in VM guest mode could make it infeasible to run 32-bit OSes in VMs with reasonable performance on the new chips. The VM hypervisor software would have to switch to emulation QEMU-style whenever the guest was running it's kernel, or revive the old scanning and patching tricks from the early days of VMware before x86 had any hardware VM support.
You're kind of forced to. I have tried to do userspace emulation using a vmm in amd64, but it's a bit hard. It is possible to handle exceptions in userspace, but you can't do page table modifications because many important instructions are ring0 only. That said, if you simplify a bit and handle paging in the host-side VMM it still works fine. You still have to do system call emulation by trapping in the SYSCALL handler. SYSCALL forces you into kernel mode, unfortunately.
So bottom line is that no matter which way you try to do the userspace emulation, some parts are going to be ring0, and thus the answer to your question is indeed yes.
I don't really kmow x86 VM architecture well enough to say -- I was guessing by analogy to Arm. But a lot of the complexity they want to get rid of is system-level stuff so if you leave it in for VMs you lose a lot of the point. It might be emulatable by the hypervisor, I guess.