"Failed download /etc/passwd" and failed to authenticate with the Guest Operating System error is seen when remediating API and AUDIT users in NSX 4.x
Additionally when you remediate the ROOT password - this fails on "failed to authenticate with the Guest OS"
VCF 5.x
This /etc/passwd error is expected when the ROOT credentials are not in sync with SDDC Manager. The SDDC Manager needs to login as ROOT to download the /etc/passwd file to change the API/AUDIT passwords.
Which means the ROOT password needs to be remediated first.
However if the ROOT password is 123 on SDDC and the password was modified on NSX to 456 using passwd. The remediate will still fail for ROOT in SDDC Manager with the new (456) updated password - "failed to authenticate with the Guest OS"
This is because the root password hasnt fully changed in NSX despite using passwd command.