Creating a VM fails with "The server encountered an internal error. Please retry the request."

Hi there,

I am trying to create a new domain-joined VM in the US East data center and add it to an existing Cloud Service and Virtual Network using the theNew-AzureVM cmdlet and it is failing with the following error message:

New-AzureVM : Failed: The server encountered an internal error. Please retry the request.
At C:\Users\richardh\Documents\Visual Studio 2012\Projects\CetarisAzure\DeployAzureTestServers.ps1:26 char:12
+ New-AzureVM <<<<  -VMs $vm1
    + CategoryInfo          : CloseError: (:) [New-AzureVM], Exception
    + FullyQualifiedErrorId : Microsoft.WindowsAzure.Management.ServiceManagement.IaaS.PersistentVMs.NewAzureVMCommand

OperationDescription : New-AzureVM - Create VM VMAZURERTM1
OperationId          : b1221ff2-aaa3-4ae4-96ba-ea95a8a1a743
OperationStatus      : Failed

If I retry running the New-AzureVM command, I get the following error because the VHD appears to have been created:

New-AzureVM : Failed: The VHD already exists: http://cetaris.blob.core.windows.net/vhds/TestClients/VMAZUREWFARTM1.vhd
At C:\Users\richardh\Documents\Visual Studio 2012\Projects\CetarisAzure\DeployAzureTestServers.ps1:26 char:12
+ New-AzureVM <<<<  -ServiceName $cloudServiceName -VMs $vm1
    + CategoryInfo          : CloseError: (:) [New-AzureVM], Exception
    + FullyQualifiedErrorId : Microsoft.WindowsAzure.Management.ServiceManagement.IaaS.PersistentVMs.NewAzureVMCommand

I then have to manually delete VHD image in order to retry the New-AzureVMcommand. I have atempted to create the VM a number of times, but it always fails.

UPDATE: Even if I try this operation manually from the Portal, I get what appears to be the same error, but this time it gives me a long running operation tracking ID.

The server encountered an internal error. Please retry the request. The long running operation tracking ID was: 1393c33813d049618a1087abc13ab483.

The VHD gets created, but this time it is not possible to delete it (without following the instructions here), since Azure believes a lease has been placed on the file.

How can I identify what is causing this operation to fail?

Thanks,
Richard