Hello Bart,
As you confirmed in the private message, the issue was resolved.
The root cause was related to the Azure Arc integration on the Azure Local cluster. The Arc agent and associated registration components were no longer functioning correctly, which caused issues with the Azure Local update workflow and prevented VM management operations from the Azure portal.
Together with Dell, we reinstalled and re-registered the Arc agent components on the cluster. After the reinstallation, the Azure connection and Arc integration were restored successfully. The cluster is now connected again, update readiness is healthy, and it is once more possible to create and manage Azure Local VMs from the Azure portal.
We have also resumed the Azure Local update process. The remaining Solution Updates are now being installed sequentially to bring the environment fully up to date.