VM "MyAppSandbox" created but failed to start: Failed to create HCS VM (0x8037010D)

Your issue

Cannot start VM after creating, please help.

WebView2 Runtime: 153.0.4234.32
WebView2: Ready
HCS: Available
VMMS certificate found.
HCN: Available
GPUs: 1 found, 1 driver shares
  [0] NVIDIA GeForce RTX 4070 (GPU-PV)
Loaded 1 VM(s) from config.
Starting VM "MyAppSandbox" (background)...
NAT subnet: 192.168.142.0/24 (gateway 192.168.142.1)
Allocated NAT IP 192.168.142.2 for "MyAppSandbox".
d3dlayers: WuCategoryId=faac1e9c-94e8-4ebd-9995-f7b96410122c
d3dlayers: downloading D3DMappingLayers package...
d3dlayers: staged 6 mapping-layer files to C:\Users\Poi\Desktop\appsandbox\d3dlayers
Re-creating HCS compute system for "MyAppSandbox"...
Plan9 share: AppSandbox.Drv.0 -> C:\WINDOWS\System32\DriverStore\FileRepository\nv_dispi.inf_amd64_a3944b54ff18b284
Plan9 share: AppSandbox.NvidiaDrs -> C:\ProgramData\NVIDIA Corporation\Drs
Plan9 share: AppSandbox.Nvidia -> C:\Users\Poi\Desktop\appsandbox\resources\nvidia
Plan9 share: AppSandbox.GlLayers -> C:\Users\Poi\Desktop\appsandbox\d3dlayers
Nested virt: ProcessorCapabilities query failed (0x8037010D); disabling.
HCS: {"Error":-1070137075,"ErrorMessage":"The virtual machine or container JSON document is invalid.","ErrorEvents":[{"Message":"The specified compute system configuration is invalid: The virtual machine or container JSON document is invalid. (0xC037010D, 'Unknown object field '$.VirtualMachine.IsolationType'').","Provider":"17103e3f-3c6e-4677-bb17-3b267eb5be57","EventId":11000,"Data":[{"Type":"String","Value":"%%3224830221"},{"Type":"String","Value":"0xC037010D"},{"Type":"String","Value":"Unknown object field '$.VirtualMachine.IsolationType'"}]}]}
Retrying VM create after stale cleanup...
HCS: {"Error":-1070137075,"ErrorMessage":"The virtual machine or container JSON document is invalid.","ErrorEvents":[{"Message":"The specified compute system configuration is invalid: The virtual machine or container JSON document is invalid. (0xC037010D, 'Unknown object field '$.VirtualMachine.IsolationType'').","Provider":"17103e3f-3c6e-4677-bb17-3b267eb5be57","EventId":11000,"Data":[{"Type":"String","Value":"%%3224830221"},{"Type":"String","Value":"0xC037010D"},{"Type":"String","Value":"Unknown object field '$.VirtualMachine.IsolationType'"}]}]}
Error: Failed to create compute system (0x8037010D)
HCN: Deleting endpoint {E0768D4F-31FA-4DA3-8BF5-120441868A2D}...
HCN: Endpoint deleted.
Deleting VM "MyAppSandbox"...
HCN: Deleting endpoint {E0768D4F-31FA-4DA3-8BF5-120441868A2D}...
HCN: Delete endpoint failed (0x803B0002).
HCN error: {"Success":false,"Error":"The endpoint was not found. ","ErrorCode":2151350274}
HCN: Deleting network {A5B01234-5678-9ABC-DEF0-112233445566}...
HCN: Network deleted.
VM deleted.

Start by tracing how the HCS compute-system configuration is generated for "MyAppSandbox", focusing on the reported unknown field $.VirtualMachine.IsolationType. Reproduce the failure using the logged VM-start sequence and verify the configuration against the available HCS behavior. Done means the VM is created and starts without the 0x8037010D error.