This is 100% reproducible:
I can take any of my Win7 VM's (which are all 32 bit working, activated, VMs), make a copy of it, and verify the copy still boots.
I shut down the working VM, encrypt it, and it will no longer boot.
Windows 7 gets almost to the logon screen and throws an "unable to start" error and tries to do a boot repair (which endlessly fails).
I'm running workstation 7.1 on a Win 7 64 bit host. The above even happens with a completely basic default VM configuration and a clean Win 7 install.
It seems to me something in the encryption is inherently incompatible with Windows 7 at least when you convert an existing machine. I haven't tried creating a new encrypted VM from scratch as I was hoping to encrypt a fully configured VM with many applications already installed.
Does anyone have any ideas here? Is anyone using encryption with Win 7
guests?