I tried using the sandbox mode today, and eventually got it to work.  I'm posting this in case other people have the same issue.

The symptom is that when trying to run in sandbox mode, the game won't start and you get prompted to setup sandbox mode again as an administrator.  Turning off sandbox mode works fine.

The issue for me was that my user is setup as a "standard user" and not an "administrator".  So when the UAC prompt comes up to go to admin mode, it prompts me for the password of my administration user.  This works fine and butler sets up the proper itch user account.  However, the registry settings are added to that administration user and not my main user.  Therefore, when the main user tries to launch the game, it doesn't see the registry settings and tries again!  That prompts again, and then says that everything is setup correctly since it is running under the administration user.

Here is the fix:

1. Launch the game under sandbox
2. Ignore the failure
3. Open regedit.exe in your administrator's account 
4. Navigate to HKEY_CURRENT_USER\Software\itch\Sandbox
5. Export this to a .reg file and delete the key (it won't be needed anymore for the administration user, also if we setup a 2nd user on this machine, you want it to create a new user and not adopt the same user!)
6. Open regedit.exe in your normal account
7. Import the .reg file you created in step #5
8. Launch the game again - it should now pickup the sandbox user and start correctly!

Hope this helps someone else that may be in the same situation!