When creating a VM with a registry source, it is not possible to use an instance-type/preference inference in the VM definition.

This is because the DV doesn't exists yet, and is only created once the VM is created, so there is no existing source to get the default-value annotation value from.
 

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1. Create a VM with inference True in the instance type field and a registry source

The creation gives an error that it does not support inference with registry source

The creation should try and fetch the annotation from the image if possible.