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One way to avoid this problem is to have the testcase based on appstate none.
The application is more than likely opening on the host machine because that is where the application was recorded. If the initial frame file is recorded on the host machine, the DefaultBaseState that is recorded will point to the executable of the application on the host machine. When an appstate is not specified, SilkTest will assume the testcase is based on the DefaultBaseState and therefore the recovery system will point to the application on the host machine. Specifying the appstate to "none" will override the DefaultBaseState.