Symptom
When a user interactively logs (using RDP client) on to a Windows Azure Role Instance running Windows Azure Guest OS 1.11, they see a “Windows Activation” dialog box.
Action
The user can ignore this dialog box by simply clicking either “Cancel” or “Activate Later” button on the “Windows Activation” dialog box. This pop-up window is just an UI issue in Guest OS 1.11 and no OS functionality issue. All Role instances running any version of Windows Azure Guest OS has valid volume licensing key and are already activated. There is no need to provide any activation key to validate the OS.
Please don’t try to activate Windows Azure Guest OS using your Windows Server OS Key, this will cause unexpected downtime and will require a reboot. Activating Windows Azure Guest OS is not a supported scenario.
Workaround
Use the next available OS or any previous version of OS (e.g., 1.10) to work around this issue.
Other forum references:
RDP on Webrole with newest guestOS: why is it asking for windows activation