The issue addressed is seen in Windows Server 2016 VM's.
After providing domain login credentials, an error is thrown saying "A device attached to the system is not functioning." An "OK" button is present, but if clicked, the user is prompted for credentials again.
vSphere 8.x
Windows Server 2016
This issue happens when trying to use a domain user account's credentials. The issue does NOT occur when using a local Windows administrator account.
The issue occurs with domain accounts because the VM has to go out on the network to the domain controllers. If the VM can not reach the domain controllers, the "A device attached to the system is not functioning." message is thrown. In some cases, the VM may not be able to reach the domain controllers because proper network configuration is in place (i.e. if a standard switch that the VM uses to get to the domain/domain controllers is removed).
To resolve this error message and restore authentication to the domain, the network configuration issue must be resolved (i.e. adding a required switch, etc.). Connectivity from the VM to the domain must be healthy.