First... I figured someone would come up with this sooner or later
. You are indeed right that BMR recovery is not possible as long as Microsoft won't allow us to boot from an ISO for an Azure VM. It is what it is...
It seems like you have found a method to do what you want to achieve, although it is kind of a "way-too-many-steps" solution
What I was thinking (and playing with)... My Azure VMs are known by my on-premises infrastructure. I have a VPN between the two of them, all done with the standard Azure functionality.
My main backup server is located on my on-premises environment. I have an Azure VM running that holds a WAN accelerator component and a repository. My backups with VEB are stored on that repository, attached to the Azure VM. Then I use once a day backup copy job to sent the data to the repository on-premises. (So I have my data with me in case something goes terribly wrong with Azure.)
For the recovery, I have 2 options...
[*] I can do exactly what you do.
[*] I recover to a VHD and upload it to Azure and then create a VM from there. (Depending on bandwidth... not so good of course but faster restore than in Azure itself)
Ideally it isn't, but at least it keeps us going already, and for me, the most important part, is that my Azure VMs are backupped to my local infrastructure...