Seems like pretty poor documentation by Azure. Encryption and performance are such key architecture concerns, they should be promoting the automatic hardware-based disk encryption as a security and performance feature. Looking at the updated docs, they still don't seem very clear to me.

Great story! Successful cloud performance investigations are always extremely satisfying. I love this conclusion:

It’s a reminder that sometimes performance bottlenecks are hard to diagnose, but with careful debugging, good data, and collaboration with providers, even cloud-level issues can be resolved.