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However, at this stage Vcenter will not say the tools are OK anymore, but instead are Unmanaged.
This might sounds like a bummer, but it appears to be a cosmetic issue and in fact the tools are OK.
Here is what my VM looks like in Vcenter. You can see that the VM is using Thin Provisioning, so that despite the VM having an 18 GB disk, it uses less than 3 GB because it is still pristine.

ESX 4.1

After I upgraded my hosts to ESXi 4.1, and our Vcenter to 4.1, my Ubuntu Lucid 64 machines will die each night when VCB tries to snapshot them for backup
This issue is under investigation.