Windows build number: Microsoft Windows [Version 10.0.18362.267]
Windows Terminal version (if applicable): 0.3.2142.0
Any other software?
Ubuntu 18.04 running in WSL1 with zsh as the default shell.
apt install sl lolcat in case they are not installed yet.
Then run sl | lolcat
A colorful steam locomotive runs over the screen and my productivity increases by 0.2 %.

🤷♂️
sl works on its own but when piped through lolcat, I only see hundreds of lines of colorful gibberish scrolling by.
looks like the version installed on WSL Ubuntu is
lolcat 42.0.99
the sl issue should be fixed in 99.9.19
EDIT: After apt uninstalling lolcat and running sudo gem install lolcat the following command works
sl | /usr/local/bin/lolcat

Confirmed! Updating to the recent lolcat fixes this issue and is seems like this was not caused by the new terminal emulator at all.
Most helpful comment
looks like the version installed on WSL Ubuntu is
lolcat 42.0.99
the sl issue should be fixed in 99.9.19
EDIT: After apt uninstalling lolcat and running sudo gem install lolcat the following command works
sl | /usr/local/bin/lolcat