It looks like something went wrong here with the configuration, tht needs to be fixed.
The port group named "VM Network", which by default is a virtual machine port group, shows up as a VMkernel port group!? I wonder how the other port groups' details look like!?
What you may try to do at this point is to create a new "Virtual Machine" port group with a name like e.g. "LAN" to see whether you can use this for the VMs.
André