There are no downsides that I can think of.
It is feasible to install Ubuntu 18.04 with the root filesystem on ZFS,
https://github.com/zfsonlinux/zfs/wiki/Ubuntu-18.04-Root-on-ZFS
However, the process is quite involved and it has not been implemented in the Ubuntu installer yet.
In terms of what LXD would prefer to have, that would be any of the good supported filesystems from the list, https://lxd.readthedocs.io/en/stable-2.0/storage-backends/
It’s just the storage of the container that has to be in a suitable filesystem.