Hi,
Well I have bumped into this today as well...error 500 with Virtualization Disabled...
Opened a support case with VMware...they told me that this is a known issue and being worked on by Engineering.
In the meantime, the suggested to add a registry value to suppress this message...(basically ignore for now)
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Before or after Agent 2.12 installation, ensure VM's are joined to the Domain.
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Hope this helped...