Just ran across an issue with KB3206632 on two lab servers running 2016 Hyper-V. Issue seems to be identical to the one Win-10 Hyper-V users are having over here.
Upon starting a guest with V-TPM enabled, Hyper-V Manager gives the following message.
An error occurred while attempting to start the selected virtual machine(s).
XXX failed to start
XXX could not initialize
The virtual machine XXX can't start becasuse the host's Isolated User Mode is off.
Unchecking Enable Trusted Platform Module in settings allows the guest to boot but requires inputting the backup key if Bitlocker is enabled.
Uninstalling KB3206632 from the host seems to work but I have only had a chance to test one host and one guest so far.
There's also a bunch of events in event log
TPM-WMI
The Trusted Platform Module (TPM) hardware on this computer cannot be provisioned for use automatically. To set up the TPM interactively use the TPM management console (Start->tpm.msc) and use the action to make the TPM ready.
Error: The TPM provisioning action is not allowed by the specified flags. For provisioning to be successful, one of several actions may be required. The TPM management console (tpm.msc) action to make the TPM Ready may help. For further information,
see the documentation for the Win32_Tpm WMI method 'Provision'. (The actions that may be required include importing the TPM Owner Authorization value into the system, calling the Win32_Tpm WMI method for provisioning the TPM and specifying TRUE for either
'ForceClear_Allowed' or 'PhysicalPresencePrompts_Allowed' (as indicated by the value returned in the Additional Information), or enabling the TPM in the system BIOS.)
Additional Information: 0x80011c