[BUG] Cowork: MSIX package folder inherits NTFS compression, causing Hyper-V VHDX mount failure (0xC03A001A) — Windows 10 Pro

Preflight Checklist

• [x] I have searched existing issues and this hasn't been reported yet
• [x] This is a single bug report (please file separate reports for different bugs)
• [x] I am using the latest version of Claude Code

What's Wrong?

Cowork fails to start with "VM service not running. The service failed to start." The actual root cause is that the MSIX package data directory (AppData\Local\Packages\Claude_pzs8sxrjxfjjc\LocalCache\) is created with NTFS compression inherited. When the VM bundle VHDX files (rootfs.vhdx, smol-bin.vhdx) are written into this directory, they inherit the compression flag. Hyper-V refuses to mount compressed VHDX files, failing with HCS error 0xC03A001A. The user-facing error gives no indication that NTFS compression is the problem — the actual HCS error is only visible in cowork_vm_node.log after significant debugging. The workaround is running compact /u on the VHDX files and their parent directory from an elevated PowerShell, but compression may return after auto-updates.

What Should Happen?

Cowork should start successfully. The installer or Cowork startup should either: (1) run compact /u on the vm_bundles directory before writing VHDX files, (2) check VHDX files for compression/sparse/encryption flags before attempting to start the VM and surface an actionable error, or (3) at minimum, include the underlying HCS error text in the user-facing error message instead of the generic "VM service not running."

Error Messages/Logs

From cowork_vm_node.log:
HCS operation failed: failed to start VM: HcsWaitForOperationResult failed with HRESULT 0xc03a001a:
{"Error":-1069940710,"ErrorMessage":"The requested operation could not be completed due to a virtual
disk system limitation. Virtual hard disk files must be uncompressed and unencrypted and must not be
sparse.","ErrorEvents":[{"Message":"'Virtual Machine': Attachment
'C:\\...\\claudevm.bundle\\smol-bin.vhdx' failed to open because of error: 'The requested operation
could not be completed due to a virtual disk system limitation. Virtual hard disk files must be
uncompressed and unencrypted and must not be sparse.' (0xC03A001A)."}]}
Confirming compression was the cause:
powershellPS> compact /q "...\claudevm.bundle\smol-bin.vhdx"
 New files added to this directory will be compressed.
 1 are compressed and 0 are not compressed.
 37,748,736 total bytes of data are stored in 6,643,712 bytes.
 The compression ratio is 5.7 to 1.
After running compact /u on both VHDX files and the bundle directory, Cowork started successfully.

Steps to Reproduce

Install Claude Desktop via MSIX on Windows 10 Pro where the MSIX package data folder inherits NTFS compression (this appears to be set by the MSIX subsystem itself — parent directories were verified uncompressed)
Open Claude Desktop and navigate to Cowork
Cowork downloads the VM bundle — VHDX files inherit compression from the directory
VM fails to start with "VM service not running. The service failed to start."
Fix: run compact /u on smol-bin.vhdx, rootfs.vhdx, and the claudevm.bundle directory from an elevated PowerShell, then restart Claude Desktop

Claude Model

Not sure / Multiple models

Is this a regression?

I don't know

Last Working Version

_No response_

Claude Code Version

1.1.8629

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

PowerShell

Additional Information

AI generated report: # [BUG] Cowork: MSIX package folder inherits NTFS compression, causing Hyper-V VHDX mount failure (0xC03A001A) — Windows 10 Pro

Preflight Checklist

• [x] I have searched existing issues and this hasn't been reported yet
• [x] This is a single bug report
• [x] I am using the latest version of Claude Code

What's Wrong?

Cowork fails to start with "VM service not running. The service failed to start." The root cause is that the MSIX package data directory (AppData\Local\Packages\Claude_pzs8sxrjxfjjc\LocalCache\) is created with NTFS compression inherited. When the VM bundle VHDX files (rootfs.vhdx, smol-bin.vhdx) are written into this directory, they inherit the compression flag. Hyper-V refuses to mount compressed VHDX files, failing with HCS error 0xC03A001A.

The user-facing error ("VM service not running") gives no indication that NTFS compression is the problem. The actual HCS error is only visible in cowork_vm_node.log and only after significant debugging.

Root Cause

1. MSIX package registration creates AppData\Local\Packages\Claude_pzs8sxrjxfjjc\LocalCache\ with the NTFS compression attribute set on the directory.
2. New files written into this directory tree (including vm_bundles\claudevm.bundle\rootfs.vhdx and smol-bin.vhdx) inherit compression.
3. Hyper-V's HCS API rejects compressed VHDX files with: "The requested operation could not be completed due to a virtual disk system limitation. Virtual hard disk files must be uncompressed and unencrypted and must not be sparse." (0xC03A001A)
4. CoworkVMService fails to start the VM → app reports "VM service not running."

HCS Error (from cowork_vm_node.log)

HCS operation failed: failed to start VM: HcsWaitForOperationResult failed with HRESULT 0xc03a001a:
{"Error":-1069940710,"ErrorMessage":"The requested operation could not be completed due to a virtual
disk system limitation. Virtual hard disk files must be uncompressed and unencrypted and must not be
sparse.","ErrorEvents":[{"Message":"'Virtual Machine': Attachment
'C:\\Users\\elendal\\AppData\\Local\\Packages\\Claude_pzs8sxrjxfjjc\\LocalCache\\Roaming\\Claude\\vm_bundles\\claudevm.bundle\\smol-bin.vhdx'
failed to open because of error: 'The requested operation could not be completed due to a virtual
disk system limitation...' (0xC03A001A)."}]}

Verification

# Before fix — smol-bin.vhdx compressed at 5.7:1
PS> compact /q "...\claudevm.bundle\smol-bin.vhdx"
 New files added to this directory will be compressed.
 1 are compressed and 0 are not compressed.
 37,748,736 total bytes of data are stored in 6,643,712 bytes.
 The compression ratio is 5.7 to 1.

# After fix — uncompressed, 1:1 ratio
PS> compact /u "...\claudevm.bundle\smol-bin.vhdx"
PS> compact /u "...\claudevm.bundle\rootfs.vhdx"
PS> compact /u "...\claudevm.bundle"
 0 are compressed and 1 are not compressed.
 37,748,736 total bytes of data are stored in 37,748,736 bytes.
 The compression ratio is 1.0 to 1.

After uncompressing both VHDX files and clearing the directory compression flag, Cowork started successfully.

Workaround

From an elevated PowerShell:

# Uncompress the VHDX files and directory
compact /u "C:\Users\%USERNAME%\AppData\Local\Packages\Claude_pzs8sxrjxfjjc\LocalCache\Roaming\Claude\vm_bundles\claudevm.bundle\smol-bin.vhdx"
compact /u "C:\Users\%USERNAME%\AppData\Local\Packages\Claude_pzs8sxrjxfjjc\LocalCache\Roaming\Claude\vm_bundles\claudevm.bundle\rootfs.vhdx"
compact /u "C:\Users\%USERNAME%\AppData\Local\Packages\Claude_pzs8sxrjxfjjc\LocalCache\Roaming\Claude\vm_bundles\claudevm.bundle"

# Restart Claude Desktop

Note: Compression may return after auto-updates that re-extract the bundle.

Suggested Fix

One or more of:

1. The installer or Cowork startup should run compact /u on the vm_bundles directory before writing VHDX files.
2. Cowork should check VHDX files for the compression/sparse/encryption flags before attempting HcsStartComputeSystem and surface a clear, actionable error message.
3. The "VM service not running" error should include the underlying HCS error text when available, rather than swallowing it.

Environment

• OS: Windows 10 Pro 22H2 (Build 19045)
• Claude Desktop: v1.1.8629 (MSIX)
• Hyper-V: Enabled, vmcompute + vmms running
• Also running: Docker Desktop, WSL2, VPN software

Steps to Reproduce

1. Install Claude Desktop via MSIX on a system where the MSIX package data folder inherits NTFS compression
2. Open Cowork
3. Cowork downloads VM bundle (rootfs.vhdx, smol-bin.vhdx) into compressed directory
4. VM fails to start with "VM service not running"

Related Issues

• #25206 — VM starts but crashes within 5 minutes (may be same root cause)
• #27010 — VM service not running on Windows 10 Pro
• #27801 — Failed to start workspace, persists after reboot
• #29941 — CoworkVMService fails to start, signature verification
• #36801 — CoworkVMService exits with code 1066