The following are my personal experiences with OnPremise sysprepped images for Azure custom image template gallery. It may be wrong or incomplete. Just sharing my personal experience.
Do not install VMWare or any other similar virtualization software agents.
Always use Generalize option with sysprep.
Do not use unattend.xml with sysprep.
Avoid conversion of disks from vhdx to vhd as much as possible. Try to use vhd format at first for your standard images that will be uploaded to Azure.
Use Disk Type: Fixed Size
Set Disk Size: 127 GB . Do not extend or shrink vhd disk size.
Prefer Disk format: vhd
Create a new Azure Storage Account. Create a new Container named “vhds”.
Upload the vhd file to the container as Page Blob using Microsoft Storage Explorer utility or AzCopy.exe.