IIRC, it used a filesystem driver shim that rerouted all FS writes during installation into an overlay filesystem image; and then generated a self-unpacking executable, embedding that overlay image, that unpacked the core EXE and spawned it shimmed to read from the overlay image.
What did Windows 10X do that was different than that?
a lot of things work just fine and are still failures from the management's point-of-view
From a quick web search, VAIL was supposed to only be used as a fallback for when RAIL (i.e. a cloud streaming service for your Win32 apps) wasn’t available. So I assume it didn’t necessarily have to be “good” — it was the “safe mode” of Win32 compatibility, per se. It just had to be there as a rare last resort.
But was RAIL any good? Did it even get built?