As per my previous blog on SMB1 AD authentication issue in 6.5u1 , VMware communicated that it will be fixed after the 6.7 U2 update but it looks like in the recent 6.5 U3 update it got fixed.In the release notes they mentioned some fix related to AD and we tested with few hosts and able to connect the AD now without issue.
PR 2268193: Managing the Active Directory lwsmd service from the Host Client or vSphere Web Client might fail
Managing the Active Directory lwsmd service from the Host Client or vSphere Web Client might fail with the following error: Failed – A general system error occurred: Command /etc/init.d/lwsmd timed out after 30 secs.
This issue is resolved in this release.
VMware ESXi 6.5.0 build-8294253
VMware ESXi 6.5.0 Update 2
VMware ESXi 6.5.0 build-13932383
VMware ESXi 6.5.0 Update 3