Hi Ruben Faustinita,
Welcome to the Microsoft Q&A Platform! Thank you for asking your question here
Based on your query, the cloud-only setup, where user accounts and VDIs are managed through Azure AD (Microsoft Entra ID) without needing an on-premises Active Directory, it is possible as per below documentation
Microsoft Entra joined session hosts in Azure Virtual Desktop
And DNS source of the machine generally for hostname issue will occur if it already exists the same name of hostname need modify the hostname, please refer the below documentation for more details and SS Sign in to a Windows virtual machine in Azure by using Microsoft Entra ID including passwordless Azure AD authentication to Windows VMs
Note: -Before making any changes or setting things up, please test it in a separate environment first to understand how it works and spot any potential issues
If you have any further query, please let me know, I will help you as needed.!