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When deploying a template using Guest Customization, Windows operating systems fail (1025707)

Symptoms

  • When deploying a template using Guest Customization, the Windows 7, Windows Server 2008, or Windows Vista based operating systems fail
  • When the virtual machine boots into Windows, you see the error:

    The computer restarted unexpectedly or encountered an unexpected error. Windows installation cannot proceed. To install Windows, click OK to restart the computer, and then restart the installation.
  • In the setupact.log file located at %SystemRoot% xxxx, you see this error multiple times:
Installation was supposedly active, but status key doesn't exist.

Resolution

This issue may occur if an invalid Product Key is entered during the Guest Customization of the template when deploying the virtual machine. 
 
To resolve this issue, ensure to provide a valid Product Key. Also, if you are using templates to deploy the virtual machine multiple times, you must have a Volume License Key. 
 
For more information on troubleshooting Volume Activation issues, see the Microsoft Knowledge Base article 938450
 
Note: The preceding link was correct as of October 1, 2010. If you find the link is broken, provide feedback and a VMware employee will update the link.
 
If you are unsure of the type of key you have, contact Microsoft Support.

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