The PVS Target VM goes into a hung state
The Windows Defender isolation feature is designed to isolate suspected compromised machines from the rest of the network to minimize further impact. The isolated machine remains connected to the Microsoft Defender ATP service for monitoring but will be unable to communicate with other devices on the network.
A PVS Target Device requires a consistent network connection with the PVS Stream service to be able to stream the required vDisk. By isolating it from the rest of the network this connection will be interrupted and the Target Device will go into a hung state / be unable to boot until the isolation is undone
Based on the above this behavior is to be expected.