Is anywhere, in any session the log file is still open on IQ Service Box?
Also, have you added -Force option while generating the log file in IQ Service Machine?
I would also also recommend to put few sleeps before and after calling the Stand Alone Powershell script which your After Create rule would be executing.
Exit Code:1 occurs majorly due to code syntax. Execute the PS script by using standalone PS command in the server and see whether it throws any error. If not, validate the connector rule by checking the syntax and un-escaping characters in it.
Make sure to set the “run as” account for the IQService using svc account which has admin permission instead of just the “logged on” user in Windows Services.
Make sure the above account which runs the IQServices have a required permission to create a directories and log files.
Check whether Utils.dll file is blocked by right click on Utils.dll file in IQService folder and goto Properties. You may see the a checkbox to Unblock it if it is blocked. Click on the checkbox and Apply the changes.
Verify the PS execution policy which may blocking the script execution.
Check on recent changes on infra level like firewall which could also block the script execution.
I can’t say exact details on it, usually something updated in the firewall rule or the PS execution policy might overridden by other rules. Since you are saying the scripts (Connector rule and PS scripts) are flawless on execution and same scripts running in sandbox, I assume it is mostly on infra level issue.