I confirm that this condition is definitely not unique. I had the same problem. Further detail: Whereas the Restore Points are listed (indicating that the System Protection and System Restore is ON), the check box for the drive cannot be filled with a check, and therefore the Next box is grayed-out. When trying to fill the check box, the response, 'You must enable System Protection for this Drive' doesn't make sense.
I couldn't use a Restore Point and didn't have an image of the system to restore. An "in place" upgrade from the install disk wouldn't work either. (Strangely, the software responded by indicating that I had booted from the disk, asked me to remove it and run the upgrade after booting normally; a rediculous suggestion.) Fortunately, I did have one other option: I used the command prompt to go to \Windows\system32\config and found that I had recent backup files for four hives. By renaming them to the active files names, my problem was solved.
The only other discussion of this condition with Windows 7 RC (that I can find) was in Microsoft TechNet concurrently. That's here: Windows 7 RC Crashed On Recent Software Install
Ronnie, the moderator, offered a logical suggestion on May 30. He wrote:
Go to the command prompt in the repair options. Type:
net start vss
This should start the System Protection Service.
Type the following command.
This command should start System Restore.
Unfortunately, the man with the problem reported that it didn't work. So, unless you backed up the hives and can get to them through the command prompt, or unless you have a system image, or unless some new fix comes along from Microsoft, I don't see a way out. What I can provide is validation about the circumstances, information on what hasn't worked, suspecions that this issue is the consequence of unproven code, and some empathy.