Docker Desktop: Unexpected error was encountered while preparing a WSL distro destination directory

Description

I am getting this error when trying to open docker desktop after installing. I installed using the command start /w "" "Docker Desktop Installer.exe" install -accept-license --installation-dir=D:\Docker --wsl-default-data-root=D:\Docker\images so it doesn't take space in my SSD.

I have Ubuntu installed on wsl2 and wsl -l -v gives:

  NAME      STATE           VERSION
* Ubuntu    Stopped         2

I have restarted windows after installing.

Reproduce

Double click Docker Desktop

Expected behavior

Docker Desktop should open

docker version

error during connect: this error may indicate that the docker daemon is not running: Get "http://%2F%2F.%2Fpipe%2Fdocker_engine/v1.24/version": open //./pipe/docker_engine: The system cannot find the file specified.
Client:
 Cloud integration: v1.0.35+desktop.5
 Version:           24.0.6
 API version:       1.43
 Go version:        go1.20.7
 Git commit:        ed223bc
 Built:             Mon Sep  4 12:32:48 2023
 OS/Arch:           windows/amd64
 Context:           default

docker info

Client:
 Version:    24.0.6
 Context:    default
 Debug Mode: false
 Plugins:
  buildx: Docker Buildx (Docker Inc.)
    Version:  v0.11.2-desktop.5
    Path:     C:\Program Files\Docker\cli-plugins\docker-buildx.exe
  compose: Docker Compose (Docker Inc.)
    Version:  v2.22.0-desktop.2
    Path:     C:\Program Files\Docker\cli-plugins\docker-compose.exe
  dev: Docker Dev Environments (Docker Inc.)
    Version:  v0.1.0
    Path:     C:\Program Files\Docker\cli-plugins\docker-dev.exe
  extension: Manages Docker extensions (Docker Inc.)
    Version:  v0.2.20
    Path:     C:\Program Files\Docker\cli-plugins\docker-extension.exe
  init: Creates Docker-related starter files for your project (Docker Inc.)
    Version:  v0.1.0-beta.8
    Path:     C:\Program Files\Docker\cli-plugins\docker-init.exe
  sbom: View the packaged-based Software Bill Of Materials (SBOM) for an image (Anchore Inc.)
    Version:  0.6.0
    Path:     C:\Program Files\Docker\cli-plugins\docker-sbom.exe
  scan: Docker Scan (Docker Inc.)
    Version:  v0.26.0
    Path:     C:\Program Files\Docker\cli-plugins\docker-scan.exe
  scout: Docker Scout (Docker Inc.)
    Version:  v1.0.7
    Path:     C:\Program Files\Docker\cli-plugins\docker-scout.exe

Server:
ERROR: error during connect: this error may indicate that the docker daemon is not running: Get "http://%2F%2F.%2Fpipe%2Fdocker_engine/v1.24/info": open //./pipe/docker_engine: The system cannot find the file specified.
errors pretty printing info

Diagnostics ID

F2092CB9-BCE7-4D5D-9243-5D49CA24FC8F/20230930061619

Additional Info

No response

docker / for-win

Docker Desktop: Unexpected error was encountered while preparing a WSL distro destination directory #13713