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Steps to reproduce

We have a Windows Service that runs as LOCALSYSTEM that uses the PowerShell SDK to periodically run pwsh commands. The calls to import modules with the UseWindowsPowershell parameter are failing.

I was able to narrow the down the scope of the repro steps to what I have below. I used the ActiveDirectory module as my example to import, but we are also seeing this behavior on other modules we import with the UseWindowsPowershell parameter.

1. Open pwsh as LOCAL SYSTEM Account. (I used psexec -s -i pwsh.exe from a command prompt on a test machine).
2. Run Import-Module ActiveDirectory -UseWindowsPowerShell. If you don't have the ActiveDirectory module installed, see here: https://docs.microsoft.com/en-us/powershell/module/activedirectory/?view=windowsserver2022-ps. I've also found running this command will produce the same results, Import-Module Microsoft.Powershell.Management -UseWindowsPowerShell -NoClobber
3. Import-Module fails.
   
4. Message logged to the PowerShell Core Operational Event logs is misleading as it seems to indicate it failed to create module in c:\windows\temp folder.
   

WORKAROUND:

1. Close the pwsh window.
2. Create the directory: c:\windows\system32\config\systemprofile\documents\powershell\modules. C:\windows\system32\config\systemprofile is the $HOME folder for the LOCAL SYSTEM account.
3. Open pwsh as LOCAL SYSTEM Account (I used psexec -s -i pwsh.exe from a command prompt).
4. Run Import-Module ActiveDirectory -UseWindowsPowerShell
5. ActiveDirectory module successfully imports.
   

Expected behavior

Module is successfully imported.

Actual behavior

Module is not imported and a failure message is returned.

Error details

Import-Module: Failed to generate proxies for remote module 'ActiveDirectory'. The -OutputModule parameter does not resolve to a path, and a user module path cannot be found for the provided name.

Environment data

Name                           Value
----                           -----
PSVersion                      7.2.5
PSEdition                      Core
GitCommitId                    7.2.5
OS                             Microsoft Windows 10.0.17763
Platform                       Win32NT
PSCompatibleVersions           {1.0, 2.0, 3.0, 4.0…}
PSRemotingProtocolVersion      2.3
SerializationVersion           1.1.0.1
WSManStackVersion              3.0

Visuals

No response