At the moment, I'm hoping the issue really stems from this being an upgrade, 
and that a new instance that already had the newer version would be OK.  What I 
believe is happening is:
 a.) old cloud-init on first boot writes /etc/fstab for the resource disk with 
something like:
     /dev/disk/cloud/azure_resource-part1 /mnt auto 
defaults,nofail,comment=cloudconfig 0 2
 b.) apt-get install of new cloud-init
 c.) resize
 d.) new system boots with the /etc/fstab line show above.  The fstab entry 
does not stop systemd from mounting the device, and the mount of the ntfs 
partition happens.  cloud-init goes to format it, and mkfs.ext4 complains.

The new cloud-init writes an fstab entry with the options field as:
 defaults,nofail,x-systemd.requires=cloud-init.service,comment=cloudconfig

I see some other paths that i'd like to clean up, including grabbing
Daniel's merge proposal at [1], but I'm currently hopeful that the issue
above is what we're seeing.

We can test that theory by manually editing the /etc/fstab entry after
first boot to include the options field above (specifically
x-systemd.requires=cloud-init.service).

--
[1] 
https://code.launchpad.net/~daniel-thewatkins/cloud-init/+git/cloud-init/+merge/310411

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https://bugs.launchpad.net/bugs/1611074

Title:
  Reformatting of ephemeral drive fails on resize of Azure VM

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