Hostname is not set on Hetzner cloud VPS after flatcar-reset

[jmacdonagh]

Description

After flatcar-reset and a reboot on a Hetzner VPS, /etc/hostname does not exist and the machine's hostname will default to localhost.

Impact

You must manually ssh in to set the hostname, or remember to add -K /etc/hostname to flatcar-reset.

Environment and steps to reproduce

1. Build and upload a snapshot of Flatcar for Hetzner following these steps and hcloud-upload-image. In this case it is Flatcar Container Linux by Kinvolk stable 4081.2.1 for Hetzner
2. Transpile a minimal ignition config, for this example:

variant: flatcar
version: 1.0.0
storage:
  files:
    - path: /foo/bar
      mode: 420
      contents:
        inline: Hi

3. Create a Hetzner cloud VPS, choose the uploaded snapshot, select your pre-existing SSH key, add the transpiled ignition under "Cloud config", choose a hostname, create the server.
4. Once created and booted, ssh in. Note /etc/hostname exists and has the name of the VPS. Note that /foo/bar exists and has the contents "Hi".
5. Run sudo flatcar-reset -K '/etc/ssh/ssh_host_.*' '/var/log' && sudo reboot
6. After rebooted, ssh in. Note that the shell prompt says core@localhost and that /etc/hostname does not exist. Note that running hostname returns localhost. Note that /etc/hostname does not exist. Note that /foo/bar exists and has the contents "Hi".

Expected behavior

After flatcar-reset, the server should boot with the existing hostname configured.

Additional information

Looking through the logs during the reboot after flatcar-reset, it looks like Ignition is running successfully, and that /sysroot/etc/hostname is being written.

Dec 30 04:19:13 localhost systemd[1]: Starting initrd-setup-root.service - Root filesystem setup...
Dec 30 04:19:13 localhost coreos-metadata[800]: Dec 30 04:19:13.521 INFO Fetching http://169.254.169.254/hetzner/v1/metadata/hostname: Attempt #1
Dec 30 04:19:13 localhost coreos-metadata[800]: Dec 30 04:19:13.523 INFO Fetch successful
Dec 30 04:19:13 localhost coreos-metadata[800]: Dec 30 04:19:13.524 INFO wrote hostname my-new-server to /sysroot/etc/hostname
Dec 30 04:19:13 localhost systemd[1]: Finished flatcar-metadata-hostname.service - Flatcar Metadata Hostname Agent.

If I search through the logs I see Ignition running successfully 7 times after the flatcar-reset and reboot. Additionally, /run/metadata/flatcar has the correct COREOS_HETZNER_HOSTNAME var.

I have the full set of logs available if needed. From a quick (uneducated) glance I wasn't able to see a definitive difference between the initial boot and the reboot after flatcar-reset that would explain this.

Thanks!