I have created a very simple network with 2 subnets.
<NetworkConfiguration xmlns:xsd="http://www.w3.org/2001/XMLSchema" xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance" xmlns="http://schemas.microsoft.com/ServiceHosting/2011/07/NetworkConfiguration">
<VirtualNetworkConfiguration>
<Dns />
<VirtualNetworkSites>
<VirtualNetworkSite name="brennetwork" AffinityGroup="brensaffinity">
<AddressSpace>
<AddressPrefix>10.4.0.0/16</AddressPrefix>
</AddressSpace>
<Subnets>
<Subnet name="FrontEndSubnet">
<AddressPrefix>10.4.2.0/24</AddressPrefix>
</Subnet>
<Subnet name="BackEndSubnet">
<AddressPrefix>10.4.3.0/24</AddressPrefix>
</Subnet>
</Subnets>
</VirtualNetworkSite>
</VirtualNetworkSites>
</VirtualNetworkConfiguration>
</NetworkConfiguration>
I have successfully deployed a hosted service with 2 roles to one of the subnets using the cscfg file to specify the details. I can see the service and role instances in the virtual network and all looks good.

I try to add a new vm through the portal and specify the same network and pick the subnet from the drop down list.

Failed to create virtual machine anothertest.
I always get the following error "The server encountered an internal error. Please retry the request. The long running operation tracking ID was: cbf4ebdb537148c8a68b471ee64d5364."
Anyone seen this before ? I can spin up vms fine if i dont pick the vnet and leave them standalone.
Thanks