Seems like there is now a thread in Silverblue for this:
The suggested workaround is:
Doing a full system relabel may mitigate the problem (especially the inability to launch a VM at all). To do this, run the following from a console:
sudo touch /.autorelabel
and then restart the system. The entire filesystem will have its SELinux labels corrected. This takes some time - anywhere from five minutes to an hour or so…
I have not tried the workaround but after the official 40 release I will try it when my system updates. Hopefully it works, otherwise I will have to roll back to 39 and wait for this to be fixed.