I just ran into the same issue.
To resolve I had to get to the underlying PC and open the windows app on it, then connect to the cloud PC. After that disconnect, and attempt the normal boot to cloud PC and no further issues
To get to the underlying PC, update the registry key Computer\HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\PolicyManager\current\device\CloudDesktop:BootToCloudMode from 1 to 0 to get back to normal boot to cloud PC change the 0 back to a 1. We are running into this a lot now, and are trying to find a better solution, but this is all we got right now.