I went back to the live update as @btmp mentioned, then it failed and booted up W7 back again. I then looked at all log files created/updated during that time but there wasn't really anything useful there. The log files indicated a rollback, but not the reason why. And reading obscure Microsoft logs is quite funny sometimes... one line had something like "What? It didn't even get to this point?" Clearly some *very* unexpected situation is preventing the installer from working.

Next I created a new NVMe disk, about the same size as my W7 boot drive, and used Clonezilla to copy all contents from the IDE drive to the NVMe disk. Clonezilla did not crash and made the full copy without showing any errors. Then I disconnected the old drive and kept only the NVMe connected and booted the W10 ISO again -- it froze the same way. So it's not the VMDK file headers, because the NVMe kept the newly created headers and geometry data intact after cloning.

So, back to troubleshooting Windows (as opposed to VMware) for now.

My next attempt was to use a Windows 8 ISO. It froze at the same point as all other W10 ISOs.

And finally I ran the Windows 7 repair tool. To my surprise, it booted up just fine, but when I chose "repair" it came back with an error: "Startup repair cannot repair this computer automatically" and "StartupRepairOffline 6.1.7600.16385 Problem Signature 05 AutoFailover NoRootCause". Googling all those terms took me down a rabbit hole that I haven't recovered from yet (no pun intended). But it looks like it's a partition issue or something. I'm starting to be amazed that the W7 system even boots up.

When I ran bootrec /fixboot, for example, I got a strange error saying "The Volume does not contain a recognized file system" despite diskpart clearly listing the C: drive as NTFS.

So clearly the drive has issues and it may not be VMware-related at all. Sigh.