[BUG] Cowork VM fails to start - HCS 0x80070005, Credential Guard conflict

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?

Claude Cowork workspace fails to start after a recent update. The error banner covers half the screen with no way to dismiss it.
Error: HCS operation failed: failed to start VM: HRESULT 0x80070005 Access is denied
Environment:

Windows 11 Pro, Build 26200 (25H2)
Claude Desktop (Microsoft Store / MSIX)
Hyper-V: Enabled, vmms service Running
Credential Guard: Active (VirtualizationBasedSecurityStatus: 2, SecurityServicesRunning: {2})

What I tried:

Restarted Claude and computer multiple times
Reinstalled workspace (multiple times, no effect)
Granted full permissions to vm_bundles folder for NT VIRTUAL MACHINE\Virtual Machines, SYSTEM, and current user
Added user to Hyper-V Administrators group
Disabled Windows Containers feature (was already disabled)
Attempted to disable Credential Guard via registry (Set-ItemProperty) — did not take effect, still active after reboot
No Group Policy enforcing Credential Guard found

Root cause (suspected): Credential Guard is active and conflicting with Cowork VM startup. Registry changes to disable it have no effect, suggesting firmware-level enforcement.
Additional issue: The error banner has no close/dismiss button and persists permanently across all sessions, blocking half the UI even though all other Claude features work normally.

What Should Happen?

Claude cowork should not report this on every session:

Failed to start Claude's workspace
HCS operation failed: failed to start VM: HcsWaitForOperationResult failed with HRESULT 0x80070005: {"Error":-2147024891,"ErrorMessage":"Access is denied.","ErrorEvents":[{"Message":"'cowork-vm-55156b6c' failed to start. (Virtual machine ID DB587B55-0F47-5E59-A2FC-0FE3599C75C8)","Provider":"51ddfa29-d5c8-4803-be4b-2ecb715570fe","EventId":12030,"Flags":13,"Data":[{"Type":"String","Value":"cowork-vm-55156b6c"},{"Type":"String","Value":"DB587B55-0F47-5E59-A2FC-0FE3599C75C8"}]},{"Message":"'cowork-vm-55156b6c' Synthetic Storage (Instance ID 1FF46D3F-E712-5DBC-9813-AAD51981A2E9): Failed to Power on with Error 'Access is denied.' (0x80070005). (Virtual machine ID DB587B55-0F47-5E59-A2FC-0FE3599C75C8)","Provider":"51ddfa29-d5c8-4803-be4b-2ecb715570fe","EventId":12010,"Flags":5,"Data":[{"Type":"String","Value":"cowork-vm-55156b6c"},{"Type":"String","Value":"DB587B55-0F47-5E59-A2FC-0FE3599C75C8"},{"Type":"String","Value":"Synthetic Storage"},{"Type":"String","Value":"%%2147942405"},{"Type":"String","Value":"0x80070005"},{"Type":"String","Value":"1FF46D3F-E712-5DBC-9813-AAD51981A2E9"},{"Type":"String","Value":""}]},{"Message":"'cowork-vm-55156b6c': Account does not have permission to open attachment 'C:\\Users\\DavorBrid\\AppData\\Local\\Packages\\Claude_pzs8sxrjxfjjc\\LocalCache\\Roaming\\Claude\\vm_bundles\\claudevm.bundle\\rootfs.vhdx (Lun 0)'. Error: 'Access is denied.' (0x80070005). (Virtual machine ID DB587B55-0F47-5E59-A2FC-0FE3599C75C8)","Provider":"edacd782-2564-4497-ade6-7199377850f2","EventId":12290,"Flags":5,"Data":[{"Type":"String","Value":"cowork-vm-55156b6c"},{"Type":"String","Value":"DB587B55-0F47-5E59-A2FC-0FE3599C75C8"},{"Type":"String","Value":"C:\\Users\\DavorBrid\\AppData\\Local\\Packages\\Claude_pzs8sxrjxfjjc\\LocalCache\\Roaming\\Claude\\vm_bundles\\claudevm.bundle\\rootfs.vhdx (Lun 0)"},{"Type":"String","Value":"%%2147942405"},{"Type":"String","Value":"0x80070005"},{"Type":"String","Value":""},{"Type":"String","Value":""}]}],"Attribution":[{"OperationFailure":{"Detail":"Start"}},{"VirtualDeviceFailure":{"Detail":"PowerOnCold","Name":"Synthetic Storage","DeviceId":"d422512d-2bf2-4752-809d-7b82b5fcb1b4","InstanceId":"1ff46d3f-e712-5dbc-9813-aad51981a2e9"}}]}

Error Messages/Logs

Steps to Reproduce

Cannot reproduce

Claude Model

None

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

1.11847.5

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

Terminal.app (macOS)

Additional Information

1.11847.5