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I understood now.

When instance is created, Horizon calls the novaclient.servers.create() - same method used in Nova cli. And passes the "custom script" you provided in the form as the userdata argument. The issue is probably in nova.

Have you tried executing the same command using nova cli?

You can enable the debugging in Horizon, to see what the request looks like being sent to Nova. From there you can at least test the same data when you invoke nova cli directly.