If you are running a Nested ESXi VM on top of a physical ESXi host that does not have a supported CPU and you are using vSphere Lifecycle Manager (vLCM), the pre-check and/or remediation will fail due to the following error:
The CPU on the host is not supported by this image
The solution is actually quite simple and is similiar to what you had to do for your physical ESXi host by adding the ESXi kernel boot option allowLegacyCPU=true to successfully boot and install ESXi as recently explained in this blog post. To emulate this setup, I am using my trusty 2011 Apple Mac Mini which is running ESXi 8.0 with the kernel boot option and it is then running a Nested ESXi 7.0 Update 3g VM.