You don’t need to enable Nanite on all meshes to use VSMs and avoid this warning. It is a warning, by the way, not an error. We have a mixture of Nanite and non-Nanite meshes in scenes without issues. As per the docs:
It is possible to make non-Nanite geometry behave the same way as Nanite by the console variable
r.Shadow.Virtual.UseFarShadowCulling 0.Local lights (Point and Spot Lights) are not affected, and selecting Distance Field shadows for these continues to override the active shadow map method.
We have only encountered this using spot lights in 5.6. In this case, we disabled Distance Field Shadows for the spotlights and that removed the warning. We weren’t suffering any performance issues anyway - we did profile it - but I didn’t want it on there going forward.