Hi,
When you are using array based replication, ALL VMs residing on a LUN will be failed over.
And yes, SRM (via SRA) will stop the replication as part of failover process..
Not sure what do you mean by "To me this will not work, as LUN01 is still replicating and this could corrupt VM1 on the other site? I may have a misunderstanding.", but during the failover process, SRM will try to shutdown VMs at the Protected site and will break replication prior to powering them on at the recovery site.
Michael.