Yes, you should dress formally for virtual interviews. You always want to show your respect to the employer. And remember, the employer wants to see themselves as that way. They want to see themselves as represented by someone who looks professional. And yes, you should try to use a natural background to hide distracting items. You shouldn't use a weird green screen. You just want to look very professional, and to the extent you can, a natural background is good. I mean, you can sit in front of a bookcase. I notice a lot of people do that. When you see newscasters at home, they generally will pick out an area that has a nice background. But anything that looks halfway is alright for a normal interview.