You will need to PXE boot into a RAM disk and then use iSCSI/NFS/CEPH/etc for persistent storage.

Because until recent versions of Windows 11, HyperV and WSL were garbage. It's actually not a horrible option now. I actually use it as my homelab second "hypervisor" as it is always on anyway and it gives me a second always on server for redundant apps with almost no extra power usage.

Are you running out of memory or CPU? ie free -h vs uptime/top? Double up the RAM if you bottleneck is RAM or use the 2 NUCs if it's a CPU bottleneck. Either way, it might be best to look at simply upgrading the a more powerful server in terms of both CPU/RAM though.

The "best OS" is whatever you like, its really a religious debate. I would say just pick your favorite linux distro. Proxmox is just debian with a fancy gui.