i'm also trying to launch a vm using existing managed os disk, my script is not working.

#Provide the name of your resource group
$resourceGroupName ='Demopractice'

#Provide the size of the virtual machine
$virtualMachineSize = 'Standard_DS3'

#Provide the name of the virtual machine
$virtualMachineName = 'demoserver1'

#Provide the name of an existing virtual network where virtual machine will be created
$virtualNetworkName = 'Demopractice-vnet'

#provide location where your os disk located
$loc='centralus'

#Provide the name of the Managed Disk...................
$managedDiskName='server1_OsDisk_1_256262bb5eec498bb8f574dfd9a4cd57'
#Get managed disk ID
$managedDiskId=Get-AzureRmDisk -ResourceGroupName Demopractice -DiskName 'server1_OsDisk_1_256262bb5eec498bb8f574dfd9a4cd57'
$AvailabilitySet = Get-AzureRmAvailabilitySet -ResourceGroupName $resourceGroupName -Name "demo"
$nic=Get-AzureRmNetworkInterface -ResourceGroupName $resourceGroupName -Name "server1351"
$nsg = Get-AzureRmNetworkSecurityGroup -ResourceGroupName $resourceGroupName -Name "server1-nsg"
$nic.NetworkSecurityGroup = $nsg
$nic | Set-AzureRmNetworkInterface

#Initialize virtual machine configuration
$VirtualMachine = New-AzureRmVMConfig -VMName $virtualMachineName -VMSize $virtualMachineSize -AvailabilitySetId $AvailabilitySet.Id
#Add a network interface to a new virtual machine
$VirtualMachine = Add-AzureRmVMNetworkInterface -VM $VirtualMachine -Id $nic.Id
$VirtualMachine = Set-AzureRmVMOSDisk -VM $VirtualMachine -Name $managedDiskId.Name -ManagedDiskId $managedDiskId.Id -CreateOption Attach -Windows -Caching ReadWrite -DiskSizeInGB $managedDiskId.DiskSizeGB
New-AzureRmVM -ResouceGroupName $resourceGroupName -Location $loc -VM $VirtualMachine.StorageProfile.OsDisk

Start by reproducing the PowerShell script with the supplied resource group, managed disk, network interface, and availability set values, then inspect the final New-AzureRmVM invocation and its error output. Done means a new VM launches successfully using the existing managed OS disk.

Written by the indexing model from the issue text.