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This looks like a concurrency issue at the moment where cloudbase-init tries to create the logon session and the Windows OS state. For the moment, I cannot reproduce the error, but I know this definitely happens to multiple users, probably because of laggy systems, where some Windows services are not properly initialized when the call to create the logon session is made.

At this moment, what we can try is to add a retry when this error happens.

If I create a custom cloudbase-init installer with the patch, can you try it out?

Thank you.