You can go the waydroid style with namespacing, or native containers if using the linux kernel. No need to do a full vm

You could, but using containers requires that your kernel directly provide and secure Android-compatible functionality, such as binder. A VM gives you more options for abstracting that functionality.

If you expect to be "essentially android, but a little different", containers make sense. If you want to build an entirely different mobile OS, but provide Android compatibility, I think a VM is much more likely to give you the flexibility to not defer to Android design decisions.