In the Administering Windows Server Hybrid Core Infrastructure objectives for managing Hyper-V, enabling nested virtualization is the required step when you must “run virtual machines inside a virtual machine.” The referenced guidance states that Hyper-V on a VM is supported only when the host exposes hardware virtualization features to the guest. The prescriptive step is: “Turn off the VM and run Set-VMProcessor -VMName <VMName> -ExposeVirtualizationExtensions $true to enable nested virtualization.” The module further notes that this action “passes through Intel VT-x/AMD-V to the guest so the guest OS can install the Hyper-V role and create VMs.” It also clarifies that “the setting is applied on the parent host for the target VM and requires the VM to be powered off before the change is committed.”

Because the technical requirement says “Ensure that you can run virtual machines on VM1”, VM1 must be able to host Hyper-V while itself running as a VM on Server2. The first and essential cmdlet is therefore Set-VMProcessor with the -ExposeVirtualizationExtensions switch set to $true against VM1. Other optional settings (for example, MAC spoofing on the vNIC or static memory) may be configured later if needed, but exposing virtualization extensions is the enabling prerequisite that satisfies the requirement.