A customer of mine did an in-place-upgrade of their domain controllers to 2008R2. The backup of the domain controllers system state went flawless until the in-place-upgrade took place. After the in-place-upgrade the backup of the domain controllers system state stop working.
The error encountered in the domain controllers logs was:
The backup operation attempted at '2010-12-01T19:39:32.315578200Z' has failed to start, error code '2155348032' (The backup storage location is invalid. You cannot use a volume that is included in the backup as a storage location. ). Please review the event details for a solution, and then rerun the backup operation once the issue is resolved.
To solve this problem you have to enable system state backups to be targeted to critical volumes.
To do this go to the registrykey at HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Services\wbengine.
Create a key called "SystemStateBackup"
Set the value of this entry as follows:
Data type: DWORD
Value data: 1
Reboot the server and case closed