I had this issue with Windows 8.1. Using local Hyper-V for testing purposes, it was not able to create a new virtual machine, it only displayed this error.

The main problem is, the domain GPO only allows certain users to be logged on as a Service. Hyper-V adds a „special“ user in the background on local systems usually, but this does not seem to work always. This special user is not available on your 2008 R2 DC where you might configure the GPO settings.

I try to describe how I got it working in my environment with mainly 2008 R2 servers and Domain Controllers:

Because my system is in German, I had to search how „NT Virtual Machines“, which is mentioned on some sites, is called in German Windows OS -> it is simply „Virtual Machines„, and not „Virtuelle Computer“ etc. as which it is described elsewhere. You see this special user when you look at the security settings of your VM settings directory in Explorer.

The last part of this blog entry (rspo.msc -> properties -> edit GPO) helped me to set the „Virtual Machines“ entry in the domain GPO, but using my local Win 8.1 system.
Additionally, if you are not sure about the special user name in your language, you can add some more entries.

Unfortunately, it overwrote my existing settings, so better note them before. After running „gpupdate /force“ it should apply the settings also on your server(s). Just to be sure, check the GPO editor there again.

When it works, you can run rsop.msc again on your local machine to check if maybe some of the users you set in the GPO could not be applied.

UPDATE

If the GPO is also applied to Win 2008 R2 servers, above method produces SceCli warnings about every 5 minutes, because the system is not able to find the „Virtual Machines“ user, so be careful and set the GPO only for Windows 8.x machines.

Another simple alternative as a workaround for this error to start VMs on Windows 8.x would be to restart the service „Hyper-V Virtual Machine Management“ (German: „Hyper-V-Verwaltung für virtuelle Computer“). Afterwards it should work… until the next reboot.

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