Thanks @demyers for context here too. I've just proposed the following
for cloud-final.service that seems to work on my side when testing in
lxd

https://code.launchpad.net/~chad.smith/ubuntu/+source/needrestart/+git/needrestart/+merge/463236

** Description changed:

  Recent downstream ubuntu-specific changes in needrestart version
  3.6-7ubuntu1 [1] set Ubuntu into autorestart mode during non-interactive
  apt-get dist-upgrade is being performed.
  
- 
- This causes an acute issue for cloud-init when #cloud-config user-data tries 
to perform apt-get dist-upgrade and package installs via user-data[2] like the 
following:
+ This causes an acute issue for cloud-init when #cloud-config user-data
+ tries to perform apt-get dist-upgrade and package installs via user-
+ data[2] like the following:
  
  #cloud-config
  package_update: true
  package_upgrade: true
  packages: [sl]
  
- 
- Since cloud-init runs apt-get dist-upgrade in cloud-final.service in 
non-interactive mode, Ubuntu's behavior looks to set the default "opt_r" mode 
to "a" (automatic). This causes problems when cloud-init package is also being 
upgraded by dist-upgrade as needrestart will collect the currently running 
cloud-final.service and determine it is a target for automtic restart. 
+ Since cloud-init runs apt-get dist-upgrade in cloud-final.service in
+ non-interactive mode, Ubuntu's behavior looks to set the default "opt_r"
+ mode to "a" (automatic). This causes problems when cloud-init package is
+ also being upgraded by dist-upgrade as needrestart will collect the
+ currently running cloud-final.service and determine it is a target for
+ automtic restart.
  
  The immediate SIGTERM of cloud-final.service prevents cloud-init from
  completing any of the remaining config modules in the cloud-final boot
  stage, notably, the additional package installs requested by the
  `packages:` directive in user data.
  
- 
- Given that cloud-final.service is a oneshot service, that can spawn apt-get 
dist-upgrade. I'd propose that minimally Ubuntu initially carries a downstream 
patch to skip automated restart of cloud-final.service[3]. I don't see an 
easier way to inject other skip regex into /etc/needrestart/needrestart.conf 
via /etc/needrestart/conf.d/cloud-init.conf that would allow us to augment the 
list of skip regexs on a per-package basis.
- 
+ Given that cloud-final.service is a oneshot service, that can spawn apt-
+ get dist-upgrade. I'd propose that minimally Ubuntu initially carries a
+ downstream patch to skip automated restart of cloud-final.service[3]. I
+ don't see an easier way to inject other skip regex into
+ /etc/needrestart/needrestart.conf via /etc/needrestart/conf.d/cloud-
+ init.conf that would allow us to augment the list of skip regexs on a
+ per-package basis.
  
  References:
  
  [1] Ubuntu needrestart setting automatic restart mode when non-interactive on 
Ubuntu 
https://git.launchpad.net/ubuntu/+source/needrestart/tree/debian/patches/ubuntu-mode.patch?id=0ee54f20335d49ba3c330e5f8328e88a8cc3f99b#n72
  [2] Upstream cloud-init bug: cloud-final.service getting sigterm before 
installing packages https://github.com/canonical/cloud-init/issues/5109
- [3] downstream packaging proposal:
+ [3] downstream packaging proposal: 
https://code.launchpad.net/~chad.smith/ubuntu/+source/needrestart/+git/needrestart/+merge/463236

** Also affects: cloud-init (Ubuntu)
   Importance: Undecided
       Status: New

** Changed in: cloud-init (Ubuntu)
       Status: New => Confirmed

** Also affects: cloud-init (Ubuntu Noble)
   Importance: Undecided
       Status: Confirmed

** Also affects: needrestart (Ubuntu Noble)
   Importance: Undecided
       Status: Confirmed

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https://bugs.launchpad.net/bugs/2059337

Title:
  noble: needrestart triggering SIGTERM of cloud-final.service
  preventing apt packages from being installed when cloud-init is also
  being upgraded

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