vSphere IaaS control plane requires the use of a vSphere 8.0 Virtual Distributed Switch (VDS) for host transport node traffic. You cannot use the NSX VDS (N-VDS) for host transport node traffic with vSphere IaaS control plane.
VDS Is Required
vSphere IaaS control plane requires a converged VDS that supports both vSphere traffic and NSX traffic on the same VDS. With previous releases of vSphere and NSX, you have one VDS (or VSS) for vSphere traffic and one N-VDS for NSX traffic. This configuration is not supported by vSphere IaaS control plane. If you attempt to enable Workload Management using an N-VDS, the system reports that the vCenter cluster is not compatible. For more information, see Troubleshoot Workload Management Enablement Cluster Compatibility Errors.
To use a converged VDS, create a vSphere 8.0 vDS using vCenter and in NSX specify this VDS when preparing the ESXi hosts as transport nodes. Just having VDS-DSwitch on the vCenter side is not sufficient. The VDS-DSwitch 8.0 has to be configured with NSX transport node profile as documented in the topic Create a Transport Node Profile and shown below.
If you have upgraded to vSphere 8.0 and NSX 4.x from previous versions, you must uninstall the N-VDS from each ESXi transport node and reconfigure each host with a VDS. Contact VMware Global Support Service for guidance.