diff --git a/CHANGELOG.md b/CHANGELOG.md
index b4a4650..004e5cc 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -5,6 +5,30 @@ All notable changes to this project will be documented in this file.
 The format is based on [Keep a Changelog](https://keepachangelog.com/en/1.1.0/),
 and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0.html).
 
+## [0.14.0] - 2025-01-25
+
+### Security
+- Add SHA256 checksum verification for Ubuntu cloud image downloads (prevents MITM attacks)
+- Add strict input validation for git name, email, VM password, and VNC password
+- Validate loaded config.env values to detect tampering
+- VNC password minimum increased from 6 to 8 characters
+- Block shell metacharacters in all user inputs to prevent injection
+- Config file created with restricted ACL from the start (no race condition window)
+- Add security reminder to remove cloud-init ISO after first boot (contains passwords)
+
+### Added
+- ARM64 architecture detection for Windows on ARM devices
+- Log file creation at `$env:TEMP\setup_env_windows_<timestamp>.log`
+- Cleanup on failure: automatically removes partial VM, disk, and ISO on error
+- Hosts file backup before modification (removed on success, kept on failure)
+- Input validation functions: `Test-GitName`, `Test-GitEmail`, `Test-VMPassword`, `Test-VNCPassword`
+- Checksum caching to avoid re-downloading verification data
+
+### Changed
+- Ubuntu image URL now uses detected architecture instead of hardcoded amd64
+- All major operations now log to file for troubleshooting
+- VM creation wrapped in try/catch with automatic cleanup on failure
+
 ## [0.13.0] - 2025-01-25
 
 ### Changed
diff --git a/setup_env_windows.ps1 b/setup_env_windows.ps1
index b26f630..58b12dc 100644
--- a/setup_env_windows.ps1
+++ b/setup_env_windows.ps1
@@ -80,16 +80,42 @@ $ErrorActionPreference = "Stop"
 $ProgressPreference = "SilentlyContinue"  # Speed up downloads
 
 $UBUNTU_VERSION = "24.04"
-$UBUNTU_IMAGE_URL = "https://cloud-images.ubuntu.com/releases/$UBUNTU_VERSION/release/ubuntu-$UBUNTU_VERSION-server-cloudimg-amd64.vhdx"
 $VM_STORAGE_PATH = "$env:ProgramData\HyperV-DevSandbox"
 $IMAGES_PATH = "$VM_STORAGE_PATH\Images"
 $VMS_PATH = "$VM_STORAGE_PATH\VMs"
 $CONFIG_FILE = "$PSScriptRoot\config.env"
+$LOG_FILE = "$env:TEMP\setup_env_windows_$(Get-Date -Format 'yyyyMMdd_HHmmss').log"
+
+# Detect architecture for correct image
+$ARCH = if ([System.Environment]::Is64BitOperatingSystem) {
+    $cpu = Get-CimInstance -ClassName Win32_Processor | Select-Object -First 1
+    if ($cpu.Architecture -eq 12) { "arm64" } else { "amd64" }
+} else {
+    "amd64"
+}
+
+$UBUNTU_IMAGE_URL = "https://cloud-images.ubuntu.com/releases/$UBUNTU_VERSION/release/ubuntu-$UBUNTU_VERSION-server-cloudimg-$ARCH.vhdx"
+$UBUNTU_CHECKSUM_URL = "https://cloud-images.ubuntu.com/releases/$UBUNTU_VERSION/release/SHA256SUMS"
 
 # ============================================================================
 # Helper Functions
 # ============================================================================
 
+# Global cleanup tracking
+$script:CleanupResources = @{
+    VMCreated = $false
+    VMName = ""
+    DiskPath = ""
+    ISOPath = ""
+}
+
+function Write-Log {
+    param([string]$Message, [string]$Level = "INFO")
+    $timestamp = Get-Date -Format "yyyy-MM-dd HH:mm:ss"
+    $logEntry = "[$timestamp] [$Level] $Message"
+    Add-Content -Path $LOG_FILE -Value $logEntry -ErrorAction SilentlyContinue
+}
+
 function Write-Status {
     param([string]$Message, [string]$Type = "Info")
     $colors = @{
@@ -105,6 +131,7 @@ function Write-Status {
         "Error" = "[X]"
     }
     Write-Host "$($prefix[$Type]) $Message" -ForegroundColor $colors[$Type]
+    Write-Log $Message $Type.ToUpper()
 }
 
 function Test-Administrator {
@@ -144,6 +171,143 @@ function Get-SecureInput {
     }
 }
 
+# ============================================================================
+# Input Validation Functions
+# ============================================================================
+
+function Test-SafeInput {
+    # Validates input contains only safe characters (no shell metacharacters)
+    param([string]$Input, [string]$AllowedPattern = '^[a-zA-Z0-9@._\s-]+$')
+    return $Input -match $AllowedPattern
+}
+
+function Test-GitName {
+    param([string]$Name)
+    # Allow letters, numbers, spaces, hyphens, periods, apostrophes
+    # Block shell metacharacters: $ ` \ " ' ; | & < > ( ) { } [ ] ! # % ^
+    if ([string]::IsNullOrWhiteSpace($Name)) { return $false }
+    if ($Name.Length -gt 100) { return $false }
+    return $Name -match "^[a-zA-Z0-9\s.'_-]+$"
+}
+
+function Test-GitEmail {
+    param([string]$Email)
+    # Standard email validation + block dangerous characters
+    if ([string]::IsNullOrWhiteSpace($Email)) { return $false }
+    if ($Email.Length -gt 254) { return $false }
+    # Must be valid email format and not contain shell metacharacters
+    return $Email -match '^[a-zA-Z0-9._%+-]+@[a-zA-Z0-9.-]+\.[a-zA-Z]{2,}$'
+}
+
+function Test-VMPassword {
+    param([string]$Password)
+    # Password requirements:
+    # - Minimum 8 characters
+    # - No characters that could break YAML or shell (no: ' " ` $ \ newlines)
+    if ($Password.Length -lt 8) { return $false }
+    if ($Password.Length -gt 128) { return $false }
+    # Block characters that could cause YAML/shell injection
+    if ($Password -match '[''"`$\\]') { return $false }
+    if ($Password -match '[\r\n]') { return $false }
+    return $true
+}
+
+function Test-VNCPassword {
+    param([string]$Password)
+    # VNC password requirements:
+    # - Minimum 8 characters (increased from 6 for security)
+    # - Maximum 8 characters (VNC limitation - only first 8 are used)
+    # - No shell metacharacters
+    if ($Password.Length -lt 8) { return $false }
+    # Block characters that could cause issues
+    if ($Password -match '[''"`$\\;&|<>]') { return $false }
+    return $true
+}
+
+function Invoke-Cleanup {
+    param([switch]$OnError)
+
+    if ($OnError) {
+        Write-Status "Cleaning up after error..." "Warning"
+        Write-Log "Cleanup triggered due to error"
+    }
+
+    # Stop and remove VM if it was created
+    if ($script:CleanupResources.VMCreated -and $script:CleanupResources.VMName) {
+        $vmName = $script:CleanupResources.VMName
+        Write-Log "Removing VM: $vmName"
+        Stop-VM -Name $vmName -Force -ErrorAction SilentlyContinue
+        Start-Sleep -Seconds 2
+        Remove-VM -Name $vmName -Force -ErrorAction SilentlyContinue
+    }
+
+    # Remove disk if created
+    if ($script:CleanupResources.DiskPath -and (Test-Path $script:CleanupResources.DiskPath)) {
+        Write-Log "Removing disk: $($script:CleanupResources.DiskPath)"
+        Remove-Item -Path $script:CleanupResources.DiskPath -Force -ErrorAction SilentlyContinue
+    }
+
+    # Remove ISO if created (contains sensitive data)
+    if ($script:CleanupResources.ISOPath -and (Test-Path $script:CleanupResources.ISOPath)) {
+        Write-Log "Removing cloud-init ISO: $($script:CleanupResources.ISOPath)"
+        Remove-Item -Path $script:CleanupResources.ISOPath -Force -ErrorAction SilentlyContinue
+    }
+}
+
+function Get-FileChecksum {
+    param([string]$FilePath)
+    $hash = Get-FileHash -Path $FilePath -Algorithm SHA256
+    return $hash.Hash.ToLower()
+}
+
+function Test-ImageChecksum {
+    param(
+        [string]$ImagePath,
+        [string]$ExpectedChecksum
+    )
+
+    Write-Status "Verifying image checksum..." "Info"
+    $actualChecksum = Get-FileChecksum -FilePath $ImagePath
+
+    if ($actualChecksum -eq $ExpectedChecksum.ToLower()) {
+        Write-Status "Checksum verified" "Success"
+        Write-Log "Checksum OK: $actualChecksum"
+        return $true
+    } else {
+        Write-Status "Checksum mismatch!" "Error"
+        Write-Log "Checksum FAILED: expected=$ExpectedChecksum actual=$actualChecksum"
+        return $false
+    }
+}
+
+function Get-UbuntuImageChecksum {
+    param([string]$ImageFileName)
+
+    try {
+        Write-Log "Fetching checksums from $UBUNTU_CHECKSUM_URL"
+        $checksums = Invoke-WebRequest -Uri $UBUNTU_CHECKSUM_URL -UseBasicParsing -ErrorAction Stop
+        $lines = $checksums.Content -split "`n"
+
+        foreach ($line in $lines) {
+            # Format: <sha256>  <filename> or <sha256> *<filename>
+            if ($line -match "^([a-f0-9]{64})\s+\*?(.+)$") {
+                $checksum = $matches[1]
+                $filename = $matches[2].Trim()
+                if ($filename -eq $ImageFileName -or $filename -eq "*$ImageFileName") {
+                    Write-Log "Found checksum for $ImageFileName : $checksum"
+                    return $checksum
+                }
+            }
+        }
+
+        Write-Log "No checksum found for $ImageFileName"
+        return $null
+    } catch {
+        Write-Log "Failed to fetch checksums: $_"
+        return $null
+    }
+}
+
 function ConvertTo-Base64 {
     param([string]$Text)
     return [Convert]::ToBase64String([System.Text.Encoding]::UTF8.GetBytes($Text))
@@ -273,11 +437,22 @@ function New-ISOFile {
 # Pre-flight Checks
 # ============================================================================
 
+# Initialize log file
+$null = New-Item -Path $LOG_FILE -ItemType File -Force -ErrorAction SilentlyContinue
+Write-Log "=========================================="
+Write-Log "Hyper-V Development Sandbox Setup Started"
+Write-Log "VM Name: $VMName"
+Write-Log "Architecture: $ARCH"
+Write-Log "PowerShell Version: $($PSVersionTable.PSVersion)"
+Write-Log "=========================================="
+
 Write-Host ""
 Write-Host "============================================================================" -ForegroundColor Green
 Write-Host "  Hyper-V Development Sandbox - Maximum Security Mode" -ForegroundColor Green
 Write-Host "============================================================================" -ForegroundColor Green
 Write-Host ""
+Write-Host "  Log file: $LOG_FILE" -ForegroundColor Gray
+Write-Host ""
 
 # Check admin privileges
 if (-not (Test-Administrator)) {
@@ -351,19 +526,21 @@ if (Test-Path $CONFIG_FILE) {
 
     do {
         $GitName = Get-SecureInput "Git commit author name" -AsPlainText
-    } while ([string]::IsNullOrWhiteSpace($GitName))
+        if (-not (Test-GitName $GitName)) {
+            Write-Host "  Invalid name. Use only letters, numbers, spaces, periods, hyphens." -ForegroundColor Yellow
+        }
+    } while (-not (Test-GitName $GitName))
 
     do {
         $GitEmail = Get-SecureInput "Git commit author email" -AsPlainText
-    } while ($GitEmail -notmatch '^[^@]+@[^@]+\.[^@]+$')
+        if (-not (Test-GitEmail $GitEmail)) {
+            Write-Host "  Invalid email format." -ForegroundColor Yellow
+        }
+    } while (-not (Test-GitEmail $GitEmail))
 
-    # Save config
-    @"
-GIT_NAME="$GitName"
-GIT_EMAIL="$GitEmail"
-"@ | Out-File -FilePath $CONFIG_FILE -Encoding UTF8
-
-    # Restrict permissions (Windows equivalent of chmod 600)
+    # Create config file with restricted permissions from the start
+    # First create empty file with restricted ACL, then write content
+    $null = New-Item -Path $CONFIG_FILE -ItemType File -Force
     $acl = Get-Acl $CONFIG_FILE
     $acl.SetAccessRuleProtection($true, $false)
     $rule = New-Object System.Security.AccessControl.FileSystemAccessRule(
@@ -374,38 +551,93 @@ GIT_EMAIL="$GitEmail"
     $acl.SetAccessRule($rule)
     Set-Acl -Path $CONFIG_FILE -AclObject $acl
 
+    # Now write config content
+    @"
+GIT_NAME="$GitName"
+GIT_EMAIL="$GitEmail"
+"@ | Out-File -FilePath $CONFIG_FILE -Encoding UTF8 -Force
+
     Write-Host ""
     Write-Status "Config saved to: $CONFIG_FILE" "Success"
 }
 
+# Validate loaded config values (could be tampered with)
+if (-not (Test-GitName $GitName)) {
+    Write-Status "Invalid git name in config file. Please delete $CONFIG_FILE and run again." "Error"
+    exit 1
+}
+if (-not (Test-GitEmail $GitEmail)) {
+    Write-Status "Invalid git email in config file. Please delete $CONFIG_FILE and run again." "Error"
+    exit 1
+}
+
 # Prompt for VM password (not stored)
 Write-Host ""
 do {
-    $VMPassword = Get-SecureInput "VM user password (min 8 chars, for 'dev' user)"
-} while ($VMPassword.Length -lt 8)
+    $VMPassword = Get-SecureInput "VM user password (min 8 chars, no quotes/backslashes)"
+    if (-not (Test-VMPassword $VMPassword)) {
+        Write-Host "  Password must be 8+ chars without quotes, backticks, dollar signs, or backslashes." -ForegroundColor Yellow
+    }
+} while (-not (Test-VMPassword $VMPassword))
 
 # Prompt for VNC password if VNC is enabled
 $VNCPassword = ""
 if (-not $SkipVNC) {
     Write-Host ""
     do {
-        $VNCPassword = Get-SecureInput "VNC password (min 6 chars, for remote desktop)"
-    } while ($VNCPassword.Length -lt 6)
+        $VNCPassword = Get-SecureInput "VNC password (exactly 8 chars, no special shell chars)"
+        if (-not (Test-VNCPassword $VNCPassword)) {
+            Write-Host "  Password must be exactly 8 chars without quotes, backslashes, or shell characters." -ForegroundColor Yellow
+        }
+    } while (-not (Test-VNCPassword $VNCPassword))
 }
 
 # ============================================================================
-# Download Ubuntu Cloud Image
+# Download Ubuntu Cloud Image (with checksum verification)
 # ============================================================================
 
 New-Item -ItemType Directory -Path $IMAGES_PATH -Force | Out-Null
 New-Item -ItemType Directory -Path "$VMS_PATH\$VMName" -Force | Out-Null
 
-$imagePath = "$IMAGES_PATH\ubuntu-$UBUNTU_VERSION-cloudimg-amd64.vhdx"
+$imageFileName = "ubuntu-$UBUNTU_VERSION-server-cloudimg-$ARCH.vhdx"
+$imagePath = "$IMAGES_PATH\$imageFileName"
+$imageChecksumPath = "$imagePath.sha256"
 
-if (-not (Test-Path $imagePath)) {
-    Write-Status "Downloading Ubuntu $UBUNTU_VERSION cloud image (~700MB)..." "Info"
+# Get expected checksum
+$expectedChecksum = $null
+if (Test-Path $imageChecksumPath) {
+    $expectedChecksum = (Get-Content $imageChecksumPath -ErrorAction SilentlyContinue).Trim()
+    Write-Log "Loaded cached checksum: $expectedChecksum"
+}
+
+if (-not $expectedChecksum) {
+    Write-Status "Fetching image checksum from Canonical..." "Info"
+    $expectedChecksum = Get-UbuntuImageChecksum -ImageFileName $imageFileName
+    if ($expectedChecksum) {
+        $expectedChecksum | Set-Content -Path $imageChecksumPath
+    }
+}
+
+$needsDownload = $true
+if (Test-Path $imagePath) {
+    if ($expectedChecksum) {
+        # Verify existing image
+        if (Test-ImageChecksum -ImagePath $imagePath -ExpectedChecksum $expectedChecksum) {
+            Write-Status "Using cached Ubuntu image (checksum verified)" "Info"
+            $needsDownload = $false
+        } else {
+            Write-Status "Cached image checksum mismatch, re-downloading..." "Warning"
+            Remove-Item -Path $imagePath -Force
+        }
+    } else {
+        Write-Status "Using cached Ubuntu image (checksum unavailable)" "Warning"
+        $needsDownload = $false
+    }
+}
+
+if ($needsDownload) {
+    Write-Status "Downloading Ubuntu $UBUNTU_VERSION cloud image ($ARCH, ~700MB)..." "Info"
     Write-Host "  URL: $UBUNTU_IMAGE_URL" -ForegroundColor Gray
-    Write-Host "  This may take a few minutes..." -ForegroundColor Gray
 
     try {
         # Use BITS for better download handling
@@ -422,19 +654,37 @@ if (-not (Test-Path $imagePath)) {
         }
         Complete-BitsTransfer -BitsJob $bitsJob
         Write-Status "Download complete" "Success"
+
+        # Verify downloaded image
+        if ($expectedChecksum) {
+            if (-not (Test-ImageChecksum -ImagePath $imagePath -ExpectedChecksum $expectedChecksum)) {
+                Remove-Item -Path $imagePath -Force -ErrorAction SilentlyContinue
+                throw "Downloaded image failed checksum verification. This could indicate a corrupted download or MITM attack."
+            }
+        } else {
+            Write-Status "Warning: Could not verify image checksum (checksum unavailable)" "Warning"
+        }
     } catch {
         # Fallback to Invoke-WebRequest
         Write-Status "BITS transfer failed, trying direct download..." "Warning"
         try {
             Invoke-WebRequest -Uri $UBUNTU_IMAGE_URL -OutFile $imagePath -UseBasicParsing
             Write-Status "Download complete" "Success"
+
+            # Verify downloaded image
+            if ($expectedChecksum) {
+                if (-not (Test-ImageChecksum -ImagePath $imagePath -ExpectedChecksum $expectedChecksum)) {
+                    Remove-Item -Path $imagePath -Force -ErrorAction SilentlyContinue
+                    throw "Downloaded image failed checksum verification. This could indicate a corrupted download or MITM attack."
+                }
+            } else {
+                Write-Status "Warning: Could not verify image checksum (checksum unavailable)" "Warning"
+            }
         } catch {
             Write-Status "Failed to download Ubuntu image: $_" "Error"
             exit 1
         }
     }
-} else {
-    Write-Status "Using cached Ubuntu image" "Info"
 }
 
 # ============================================================================
@@ -444,8 +694,15 @@ if (-not (Test-Path $imagePath)) {
 $vmDiskPath = "$VMS_PATH\$VMName\disk.vhdx"
 
 Write-Status "Creating VM disk ($DiskGB GB)..." "Info"
-Copy-Item -Path $imagePath -Destination $vmDiskPath -Force
-Resize-VHD -Path $vmDiskPath -SizeBytes ($DiskGB * 1GB)
+try {
+    Copy-Item -Path $imagePath -Destination $vmDiskPath -Force
+    $script:CleanupResources.DiskPath = $vmDiskPath
+    Resize-VHD -Path $vmDiskPath -SizeBytes ($DiskGB * 1GB)
+} catch {
+    Write-Status "Failed to create VM disk: $_" "Error"
+    Invoke-Cleanup -OnError
+    exit 1
+}
 
 # ============================================================================
 # Generate SSH Key
@@ -580,8 +837,9 @@ instance-id: $VMName-$(Get-Date -Format 'yyyyMMddHHmmss')
 local-hostname: $VMName
 "@
 
-# Create cloud-init ISO
+# Create cloud-init ISO (contains sensitive data - will be cleaned up)
 $cloudInitISO = "$VMS_PATH\$VMName\cloud-init.iso"
+$script:CleanupResources.ISOPath = $cloudInitISO
 
 Write-Status "Creating cloud-init ISO..." "Info"
 try {
@@ -590,6 +848,7 @@ try {
         throw "ISO file was not created"
     }
     Write-Status "Cloud-init ISO created" "Success"
+    Write-Log "Cloud-init ISO contains passwords - will be removed after first boot"
 } catch {
     Write-Status "Failed to create cloud-init ISO: $_" "Error"
     Write-Host ""
@@ -601,6 +860,7 @@ try {
     Write-Host "2. Install genisoimage in WSL:" -ForegroundColor Cyan
     Write-Host "   wsl sudo apt-get install genisoimage" -ForegroundColor White
     Write-Host ""
+    Invoke-Cleanup -OnError
     exit 1
 }
 
@@ -614,53 +874,64 @@ Write-Host "  Memory: $MemoryGB GB (dynamic)" -ForegroundColor Gray
 Write-Host "  Disk:   $DiskGB GB" -ForegroundColor Gray
 Write-Host "  Switch: $($vmSwitch.Name)" -ForegroundColor Gray
 
-# Create VM (Generation 2 for UEFI)
-$vm = New-VM -Name $VMName `
-    -Generation 2 `
-    -MemoryStartupBytes ($MemoryGB * 1GB) `
-    -VHDPath $vmDiskPath `
-    -SwitchName $vmSwitch.Name `
-    -Path "$VMS_PATH\$VMName"
-
-# Configure VM processor
-Set-VMProcessor -VM $vm -Count $CPUs
-
-# Configure dynamic memory
-Set-VMMemory -VM $vm -DynamicMemoryEnabled $true `
-    -MinimumBytes 2GB `
-    -StartupBytes ($MemoryGB * 1GB) `
-    -MaximumBytes ($MemoryGB * 1GB)
-
-# Disable Secure Boot for Ubuntu (required for cloud images)
-Set-VMFirmware -VM $vm -EnableSecureBoot Off
-
-# Add cloud-init ISO as DVD drive
-Add-VMDvdDrive -VM $vm -Path $cloudInitISO
-
-# Configure boot order (DVD first for initial boot, disk for subsequent)
-$dvd = Get-VMDvdDrive -VM $vm
-$hdd = Get-VMHardDiskDrive -VM $vm
-Set-VMFirmware -VM $vm -BootOrder $dvd, $hdd
-
-# Security: Disable integration services for maximum isolation
-Write-Status "Configuring security settings..." "Info"
-Disable-VMIntegrationService -VM $vm -Name "Guest Service Interface" -ErrorAction SilentlyContinue
-Disable-VMIntegrationService -VM $vm -Name "Heartbeat" -ErrorAction SilentlyContinue
-# Keep Time Synchronization and Shutdown for usability
-
-# Enable nested virtualization (for Docker inside VM)
 try {
-    Set-VMProcessor -VM $vm -ExposeVirtualizationExtensions $true
-    Write-Host "  Nested virtualization: enabled" -ForegroundColor Gray
+    # Create VM (Generation 2 for UEFI)
+    $vm = New-VM -Name $VMName `
+        -Generation 2 `
+        -MemoryStartupBytes ($MemoryGB * 1GB) `
+        -VHDPath $vmDiskPath `
+        -SwitchName $vmSwitch.Name `
+        -Path "$VMS_PATH\$VMName"
+
+    # Track for cleanup
+    $script:CleanupResources.VMCreated = $true
+    $script:CleanupResources.VMName = $VMName
+
+    # Configure VM processor
+    Set-VMProcessor -VM $vm -Count $CPUs
+
+    # Configure dynamic memory
+    Set-VMMemory -VM $vm -DynamicMemoryEnabled $true `
+        -MinimumBytes 2GB `
+        -StartupBytes ($MemoryGB * 1GB) `
+        -MaximumBytes ($MemoryGB * 1GB)
+
+    # Disable Secure Boot for Ubuntu (required for cloud images)
+    Set-VMFirmware -VM $vm -EnableSecureBoot Off
+
+    # Add cloud-init ISO as DVD drive
+    Add-VMDvdDrive -VM $vm -Path $cloudInitISO
+
+    # Configure boot order (DVD first for initial boot, disk for subsequent)
+    $dvd = Get-VMDvdDrive -VM $vm
+    $hdd = Get-VMHardDiskDrive -VM $vm
+    Set-VMFirmware -VM $vm -BootOrder $dvd, $hdd
+
+    # Security: Disable integration services for maximum isolation
+    Write-Status "Configuring security settings..." "Info"
+    Disable-VMIntegrationService -VM $vm -Name "Guest Service Interface" -ErrorAction SilentlyContinue
+    Disable-VMIntegrationService -VM $vm -Name "Heartbeat" -ErrorAction SilentlyContinue
+    # Keep Time Synchronization and Shutdown for usability
+
+    # Enable nested virtualization (for Docker inside VM)
+    try {
+        Set-VMProcessor -VM $vm -ExposeVirtualizationExtensions $true
+        Write-Host "  Nested virtualization: enabled" -ForegroundColor Gray
+    } catch {
+        Write-Host "  Nested virtualization: not available" -ForegroundColor Gray
+    }
+
+    # Set automatic checkpoints off (for performance)
+    Set-VM -VM $vm -AutomaticCheckpointsEnabled $false
+
+    Write-Status "VM created successfully" "Success"
+
 } catch {
-    Write-Host "  Nested virtualization: not available" -ForegroundColor Gray
+    Write-Status "Failed to create VM: $_" "Error"
+    Invoke-Cleanup -OnError
+    exit 1
 }
 
-# Set automatic checkpoints off (for performance)
-Set-VM -VM $vm -AutomaticCheckpointsEnabled $false
-
-Write-Status "VM created successfully" "Success"
-
 # ============================================================================
 # Start VM and Wait for Provisioning
 # ============================================================================
@@ -695,18 +966,37 @@ Write-Host ""
 if ($vmIP) {
     Write-Status "VM IP: $vmIP" "Success"
 
-    # Update hosts file for easy access
+    # Update hosts file for easy access (with backup)
     $hostsFile = "$env:SystemRoot\System32\drivers\etc\hosts"
+    $hostsBackup = "$env:SystemRoot\System32\drivers\etc\hosts.backup_$(Get-Date -Format 'yyyyMMdd_HHmmss')"
     $hostsEntry = "$vmIP`t$VMName.local"
 
-    # Remove old entry if exists
-    $hostsContent = Get-Content $hostsFile -ErrorAction SilentlyContinue
-    $hostsContent = $hostsContent | Where-Object { $_ -notmatch "\s+$VMName\.local\s*$" }
+    try {
+        # Create backup before modification
+        if (Test-Path $hostsFile) {
+            Copy-Item -Path $hostsFile -Destination $hostsBackup -Force
+            Write-Log "Created hosts file backup: $hostsBackup"
+        }
 
-    # Add new entry
-    $hostsContent += $hostsEntry
-    $hostsContent | Set-Content $hostsFile -Force
-    Write-Status "Updated hosts file: $VMName.local -> $vmIP" "Info"
+        # Remove old entry if exists
+        $hostsContent = Get-Content $hostsFile -ErrorAction SilentlyContinue
+        $hostsContent = $hostsContent | Where-Object { $_ -notmatch "\s+$VMName\.local\s*$" }
+
+        # Add new entry
+        $hostsContent += $hostsEntry
+        $hostsContent | Set-Content $hostsFile -Force
+        Write-Status "Updated hosts file: $VMName.local -> $vmIP" "Info"
+
+        # Remove backup if successful (keep only on failure)
+        Remove-Item -Path $hostsBackup -Force -ErrorAction SilentlyContinue
+    } catch {
+        Write-Status "Failed to update hosts file: $_" "Warning"
+        Write-Host "  You may need to manually add: $hostsEntry" -ForegroundColor Yellow
+        Write-Host "  To file: $hostsFile" -ForegroundColor Yellow
+        if (Test-Path $hostsBackup) {
+            Write-Host "  Backup available at: $hostsBackup" -ForegroundColor Yellow
+        }
+    }
 
     # Wait a moment for SSH to be ready
     Write-Status "Waiting for SSH to become available..." "Info"
@@ -768,7 +1058,19 @@ if ($vmIP) {
     Write-Host ""
 }
 
+# Security reminder about cloud-init ISO
+Write-Host "SECURITY:" -ForegroundColor Yellow
+Write-Host "  The cloud-init ISO contains your VM password. After first boot completes," -ForegroundColor White
+Write-Host "  remove it for security:" -ForegroundColor White
+Write-Host "  Stop-VM -Name $VMName; Remove-VMDvdDrive -VMName $VMName -ControllerNumber 0 -ControllerLocation 1" -ForegroundColor Cyan
+Write-Host "  Remove-Item `"$cloudInitISO`"" -ForegroundColor Cyan
+Write-Host ""
+Write-Host "LOG FILE:" -ForegroundColor Yellow
+Write-Host "  $LOG_FILE" -ForegroundColor White
+Write-Host ""
 Write-Host "============================================================================" -ForegroundColor Green
 Write-Host "  Security: Full Hyper-V isolation (separate kernel, network, filesystem)" -ForegroundColor Green
 Write-Host "============================================================================" -ForegroundColor Green
 Write-Host ""
+
+Write-Log "Setup completed successfully for VM: $VMName"