Learn Russian: Сначала я был в растерянности.

While you can say я был растерян, Russian frequently uses the preposition в plus the Prepositional case to describe being fully immersed in a psychological or emotional state. It is similar to saying 'I was in a state of confusion' in English and sounds very natural.

Why does the prepositional ending for растерянности end in -и instead of the usual -е?

The dictionary form is растерянность, which is a feminine noun ending in a soft sign (-ь). Feminine nouns in this category (often called the 3rd declension) take an -и ending in the Prepositional, Dative, and Genitive cases.

Could I use вначале instead of сначала in this sentence?

Yes, they are almost perfectly interchangeable here. Both mean 'at first' or 'initially.' Сначала is slightly preferred when you are setting up a contrast with something that happened later (for example: 'At first I was bewildered, but then I understood').

How does the root of растерянность help explain its meaning?

It is built around the root from терять (to lose). With the prefix рас- indicating spreading out or scattering, the literal feeling is being 'scattered' or having lost your mental bearings, which perfectly translates to bewilderment or confusion.