Description of problem:
After enabling encryption at host the mkfs.xfs being called by cloud-init is no longer producing a filesystem that is mountable.

Version-Release number of selected component (if applicable):
xfsprogs-5.0.0-11.el8_8.x86_64
kernel 4.18.0-477.15.1.el8_8.x86_64

How reproducible:
After booting a current rhel 8.8 systems that was deallocated cloud init initializes the ephemeral disk. it calls mkfs.xfs on a partition it created according to my cloud-init userdata:

#cloud-config
disk_setup:
ephemeral0:
table_type: gpt
layout: [66, [33,82]]
overwrite: true
fs_setup:

• device: ephemeral0.1
  filesystem: xfs
  overwrite: true
• device: ephemeral0.2
  filesystem: swap
  mounts:
• ["ephemeral0.1", "/mnt/resource"]
• ["ephemeral0.2", "none", "swap", "sw", "0", "0"]

Steps to Reproduce:
1. Create VM with that user-data in Azure
2.
3.

Actual results:
Depending on the encryption at host setting it either works or not

Expected results:
Works with encryption at host enabled and disabled

Additional info:
I use the pay as you go image:
"imageReference": {
"id": "",
"offer": "RHEL",
"publisher": "RedHat",
"sku": "8-lvm-gen2",
"version": "latest"
fully updated to all released errata as of today

Attached Red Hat Support case that includes sos reports of both states: 03572027
Microsoft Support Case: 2307280050000960