If the point of in-guest encryption is to protect against an unencrypted host or one that was captured before the guest was shutdown then IMO the benefits are very small and only realized if users meet a very strict and unrealistic requirements for how they use VMs. In normal usecases data from a running guest will leak unencrypted all over the host and stay there:
The performance penalty of running yet another layer of encryption (assuming the host has FDE) is too much given limited performance in a virtual environment as it is.
If the point of in-guest encryption is to protect a guest image at-rest sent over untrusted networks then this too is not a good idea. While data inside the image is encrypted and protected, image headers and the boot partition of the guest are not and could be maliciously modified in transit without the user noticing (unless they generate a hash the image to verify integrity). It would make more sense to just use GPG to encrypt the image file than continuously incurring the performance penalty of in-guest encryption for a rare usecase - transferring used image files over the internet.