I think I found the culprit. When installing from ISO it installs HWE
kernel.

LXD 5.21 LTS uses the Virtio GPU by default but the ubuntu:22.04 image
uses 5.15 generic kernel which does not have virtio_gpu driver

ubuntu@desktop-jammy-vm:~$ lshw -C display
WARNING: you should run this program as super-user.
  *-display                 
       description: VGA compatible controller
       product: Virtio GPU
       vendor: Red Hat, Inc.
       physical id: 0
       bus info: pci@0000:04:00.0
       version: 01
       width: 64 bits
       clock: 33MHz
       capabilities: vga_controller bus_master cap_list rom
       configuration: driver=virtio-pci latency=0
       resources: iomemory:80-7f irq:21 memory:80000000-807fffff 
memory:800300000-800303fff memory:80800000-80800fff memory:c0000-dffff
  *-graphics
       product: EFI VGA
       physical id: 1
       logical name: /dev/fb0
       capabilities: fb
       configuration: depth=32 resolution=1280,800
WARNING: output may be incomplete or inaccurate, you should run this program as 
super-user.
 

The way out of this situation is to install HWE kernel

$ apt install -y linux-virtual-hwe-22.04

and reboot

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https://bugs.launchpad.net/bugs/2098014

Title:
  spice-vdagent seems not to be working in jammy when connecting from
  noble

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