Cowork workspace broken since update - VM service not running

Bug Description

Cowork workspace fails with "VM service not running. The service failed to start." since updating to Claude v1.2581.0.0

Environment

• Windows 11 25H2 Build 26200 (Insider)
• Claude Desktop: Claude_1.2581.0.0_x64__pzs8sxrjxfjjc
• Claude Code SDK: 2.1.101
• Azure AD joined machine

Details

HCS event logs confirm the VM (cowork-vm-97caf3ee) creates and boots successfully via HCS, but the internal VM service fails. HCS Admin log shows recurring Invalid JSON document dollar (0xC037010D) since the update.

Troubleshooting completed:

• Added user to Hyper-V Administrators group
• Enabled Microsoft-Hyper-V-All feature
• Wiped vm_bundles + sessiondata.vhdx, fresh re-download
• Restarted HCS service + full reboot
• Reinstalled Claude Desktop twice

VM creates and starts fine at HCS level but main.log shows: Session initialization failed: VM service not running.

Logs: %APPDATA%\Claude\logs\main.log, Event Viewer Microsoft-Windows-Hyper-V-Compute-Admin