They added custom instructions to Apple silicon to more easily emulate x86 behavior (e.g., https://developer.apple.com/documentation/virtualization/acc...). They may have now removed them because their analytics say that Rosetta2 use on new devices is minimal.
Virtualizing older macOS on M4 hardware has nothing to do with Rosetta 2. And it would be ridiculous for Apple to remove hardware features that Rosetta 2 relies upon before they're actually ready to retire Rosetta 2—that would force Apple to invest more software engineering effort in updating Rosetta 2 to work without those features.