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8.1 Update 1 - Can't set up a default Virtual Machine.

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Am trying to set-up a virtual machine on 64bit Surface Pro 2 system using Hyper-V Manager but after clicking Finish to create a default VM the New VM Wizard displays a window stating:

The Virtual Machine Management service encountered an error while configuring the hard disk on virtual machine New Virtual Machine.
Failed to create the virtual hard disk.
The system failed to create
C:\users\public\documents\\Hyper-V\Virtual Hard Discs\New Virtual Machine.vhdx

Originally, before setting the machine back to factory settings, I had got past this point creating a WindowsXP VM but was unable to edit the default VM so decided to go back to factory settings. Whilst applying 8.1 updates I found I had now got 8.1 Update 1  - then moving on to setting up VM I got the above error.

Having almost zero Windows experience beyond XP some advice would be greatly appreciated.
I see two options, one to go back to a USB system image 8.1 upgrade 1 or
revert to 8.1 recovery factory image

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