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The URL you gave is not present on my setup. However, I can see the hostname correctly passed via this URL

PS C:\Users\Administrator> Invoke-WebRequest http://169.254.169.254/latest/meta-data/hostname -UseBasicParsing


StatusCode        : 200
StatusDescription : OK
Content           : hdent4
RawContent        : HTTP/1.1 200 OK
                    Content-Length: 6
                    Content-Type: text/html; charset=UTF-8
                    Date: Sun, 02 Aug 2015 13:27:55 GMT

                    hdent4
Forms             :
Headers           : {[Content-Length, 6], [Content-Type, text/html; charset=UTF-8], [Date, Sun, 02 Aug 2015 13:27:55
                    GMT]}
Images            : {}
InputFields       : {}
Links             : {}
ParsedHtml        :
RawContentLength  : 6

Hostname is set via the Metadata. I don't think Init Script has anything to do with it. I get the same results even when I don;t pass any inti script