I think there's enough room on the System Reserved partition. It shows 69MB (69%) free space. On my machine I've got 54MB (54%) free space. So I think System Protection needs to be checked. And it's relatively easy. If I can do it, anybody can do it!
-Click Start > type in Create. A list if items will appear.
-Select "Create a restore point". A new dialog box will appear called System Properties.
-Make sure "Protection" is On for C: System.
-Regardless if it's On or Off, click the "Configure" button.
-Another dialog box will open called System Protection for Local Disk C:
-Under "Restore Settings" select the first option (Restore system settings...)
-If "Protection" was previous Off it will now be On
-Check "Current Usage" and "Max Usage". As I understand it, Current Usage tells you how much hard drive space is currrently being used for restore points and Volume Shadow Copies. Max Usage tells you how much total hard drive space is set aside for restore points and Volume Shadow Copies.
-Use the slide control to set Max Usage. I think the default is 10% of total hard drive size. So on a 1TB (1000GB) drive you're looking at about 100GB being set aside. That might be overkill if you're running low on hard drive space. (I've got mine set to 2% and I have no problems using the Windows 7 built in imaging tool to create my system images. Right now I have 2 restore points set and 3 system images. I've used less than 2GB for all of that. You can play around with this setting and optimize it for your machine.)
-Click OK to save settings and close dialog boxes