ltk, i'm having the same exact problem. i just installed 7 pro a few days ago, and was loading up all my software on to it. as i was doing this, i was also rummaging around control panel and customizing my settings. instead of doing what i usually do (manually backing up my documents on my external drive), i decided to check out windows backup for a change.
at first, i click on set up backup, and a window popped up asking me which drive to use as a backup. great! since my external drive had a ton of stuff on it, backed up manually, i had to clear some space first before starting the windows backup process. so i closed out of the window, planning on returning to it later.
a few more software installs later, and after a hailstorm of windows updates and required reboots, i finally got to the point where i was ready to use windows backup. so i went to backup and restore under control panel, clicked on set up backup like i did before, but nothing happened!
i don't see any error logs in the event viewer, and i don't have any third-party firewalls or other protective software installed. hell, i have windows firewall disabled even. but the sucker just won't open! and i've ready many accounts of the same problem in my searches on the web. i have yet to read any solutions or explanations for this, though.
on a side note, the "create a system image" option on the left of the window in the blue pane does work. it did not open up the same menu of options as the "set up backup" option. but does it actually do the same thing? at first i thought that "backup" and "system image" were two different things, but i'm running the "system image" option now and as it crunches away, it says "windows is saving the backup... backing up (C)..." so are system image and backup being used synonymously here? because i'm very confused now...