Found the issue myself this morning. Citrix case still open with the escalation engineer. The issue is that the compacting is done through impersonation with the computer account. But the computer accounts do not have permissions on our VHDX containers. Not sure if this is by design (probably). Updated the case and waiting for the response. @Nick Panaccio fyi... Maybe worth looking in the same direction?!

Man, that actually sounds familiar from my FSLogix days. If you hear back on that being the case, can you reply here? We are not using compacting right now, but I think that's still on the horizon.