If I create the VM from VMM 2008 R2 it "fails" on "Install VM Components" because there is no o/s yet. But I can then start VM from VMM and boots from ISO just fine.
From SSP it fails with:
Parameters cannot be specified for the guest operating system because the selected template was created as a non-customizable template (-NoCustomization parameter). (Error ID: 730) Please retry the operation without specifying guest operating system parameters.
Have tried with/without a synthetic network adapter and have also tried a custom action without the -Owner $SubmittedBy -ComputerName $vmName -FullName $submittedBy from the New-VM entries in the createvm task.