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Sysprep for Windows 7 and Server 2008 Fails

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I have an environment with W7 and Windows 2008 templates that do not complete the sysprep routine. Once the VM's deploy they sit for at least 30 minutes at the login screen. When you log in there is an interactive services error

 

Untitled picture1.png

If I press "view the message" I get the following

 

Untitled picture2.png

 

 

If I press OK and return to desktop the script exits and on reboot the customization script updates the registry and the machine name is changed. I went into the customization log and all I see is this:

Untitled picture3.png

 

Lab Manager version is 4.02 and vCenter\Esxi is 4.1u1


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