In an infrastructure where VMs are stored on local storage in Hyper-V servers, the most suitable proxy to use for backing up these VMs would be the on-host backup proxy. The on-host backup proxy utilizes the resources of the host itself to perform the backup operations, which is ideal when the VMs are stored on local storage rather than on a centralized SAN or NAS. This approach minimizes the need for additional infrastructure and is typically efficient for local storage scenarios.