Network isolation does not work on Windows Server 2008 R2 hosts if you are using Beta2 version of Visual Studio Team Lab Management. When you create an environment with network isolation on a 2008 R2 host and start it, you will get the following error:
Network isolation timed out. Last known status: Acquiring external IP for the Lab system from DHCP. Pause and start the environment to retry the operation. If the problem persists, shutdown and start the environment.
The root cause of this is a MAC spoofing issue in SCVMM. SCVMM has a QFE to fix the problem (http://support.microsoft.com/kb/976244). The QFE needs to be applied on the VMM server. If you are using Beta2 of Team Lab Management, and if you apply the QFE, you will see a slight improvement in how network isolation works on Windows Server 2008 R2 hosts. For instance, you will be able to start a network isolated environment and get the network isolation capability to become ‘ready’. However, when you restore that environment to a snapshot or do other complex stuff, network isolation will still not work.
To get network isolation to fully work on 2008 R2 hosts, you will will have to not only install the SCVMM QFE but wait for the RC version of Visual Studio Team Lab Management! Meanwhile, with Beta2 version, network isolation works just fine on Windows Server 2008 SP2 hosts.