Nope, not asking too much at all; this is pretty much one of the cannonical use cases for this product (and the sister product, Stage Manager).

Fenced mode becomes key for this sort of thing--you don't even have to change your networking on the clone because it's hidden off behind a NAT router, so it really does become a bitwise duplicate.

It's a whole lot easier if production can also be made to be a set of VM's encapsulated within lab manager--at the very least, "refreshing" test with a fresh duplicate of production data can be made a whole lot faster by exploiting linked clones, but importing works too.

Does the current version of Lab Manager allow importing powered on virtual machines (production) into the Lab Manager enviroment??? Just trying to duplicate the production virtual machines into the Lab Manager as test virtual machines in fenced mode.

As for completely isolated you can create a virtual network and connect all of your VMs to it. Then you can access lab manager from your production network while keeping the VMs in lab manager isolated. But you will have to have all of your infrastructure servers there as well. (Domain Controllers, DNS DHCP etc..)