Thanks All.

A newer Azure Agent which no longer touches cloud-init data is already
in the pipeline.

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https://bugs.launchpad.net/bugs/1803173

Title:
  cloud-init disables user on azure at second reboot

Status in cloud-init:
  Invalid
Status in linux package in Ubuntu:
  Triaged
Status in walinuxagent package in Ubuntu:
  Confirmed

Bug description:
  Hello,

  Environment:

  platform: Azure
  arm image: Canonical UbuntuServer 16.04-DAILY-LTS latest

  Steps:

  Deploy VM with user/pass authentication
  Install latest linux-next-upstream kernel (for example 4.19.0-4db9d11bcbef, 
where 4db9d11bcbef is the git tag from the linux-next latest tree: 
https://kernel.googlesource.com/pub/scm/linux/kernel/git/next/linux-next/)
  reboot (all good)
  reboot again
  cloud-init disables the username password authentication
  I checked the cloud-init logs and found:

  2018-11-01 16:45:28,566 - init.py[INFO]: User already exists, skipping.
  2018-11-01 16:45:28,570 - util.py[DEBUG]: Running command ['passwd', '-l', 
''] with allowed return codes [0] (shell=False, capture=True)
  2018-11-01 16:45:28,793 - util.py[DEBUG]: Reading from /etc/sudoers 
(quiet=False)
  2018-11-01 16:45:28,795 - util.py[DEBUG]: Read 781 bytes from /etc/sudoers
  2018-11-01 16:45:28,796 - util.py[DEBUG]: Writing to 
/etc/sudoers.d/90-cloud-init-users - ab: [None] 51 bytes
  2018-11-01 16:45:28,797 - handlers.py[DEBUG]: finish: 
init-network/config-users-groups: SUCCESS: config-users-groups ran successfully

  This issue is very bad one, as it can render your vm inaccessible on Azure.
  I think this problem is due to the new kernel installation.

  Initial bug report:
  https://github.com/Azure/WALinuxAgent/issues/1386

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