Hi Guys, probably a daft question - but if your running a VPN on a VM, is it actually working as intended? - or is it just emulated in some way? I mean if your sharing the one network connection with your desktop and vm, how could it work? - one part is normal connection, the other the VPN connection. Guess its the same as running a SFTP on a VM.. is the connection actually encrypted if one half of the connection is unencrypted???
The connection is encrypted from the VPN concentrator to the endpoint. It's quite possible for an endpoint to become rogue via another vector including viruses, root kits, lack of encryption and so on. That's why host posture and DLP/disk encryption is a massive topic in IT Security right now.
Inside the VM? The all the traffic originating from and going to the VM will be going through your VPN and will be encrypted (ignoring issues like DNS leaks, I assume you've set it up correctly). The rest of the traffic from your desktop will be as normal. Yes the VM traffic is encrypted even if your desktop traffic is not.
You should be able to test this. Connect to a http (i.e. non-encrypted traffic) website on the VM, while running a network trace using something like fiddler on your host pc and see what information you can glean from the packets. While not on the VPN, you should be able to see a fair amount, and then hook in to your VPN and you should be blind.
If you are running it inside the VM, the data should be encrypted. I did something similiar last month and it worked perfectly.