To create a VM template from an existing virtual machine in a Nutanix AHV environment, the source VM must be powered off. This action ensures that the virtual machine's disks are in a consistent, quiescent state, which is a mandatory prerequisite for creating a reliable master image. The Prism interface will not allow the "Convert to VM Template" operation to be initiated on a VM that is currently running.

A. Sysprep or Cloud-init script: These are best practices for guest OS customization to ensure uniqueness when cloning, but not a technical prerequisite for the template creation action itself.

B. The VM is powered on: The operation is explicitly blocked on powered-on VMs to ensure data consistency for the resulting template.

C. Windows OS is installed: VM templates can be created from any supported guest operating system, including various Linux distributions, not just Windows.

1. Nutanix Prism Web Console Guide (AOS 6.5), Chapter: VM Management (AHV), Section: Creating a VM Template. The first sentence of the procedure states, "You can create a VM template from a powered-off guest VM."

2. Nutanix University, Nutanix Certified Associate (NCA) v6.5 Courseware, Module 4: VM Management, Section: Managing VMs. The course material explicitly lists powering off the VM as a required step before it can be converted into a template.