Well, I did the /scannow in elevated privilege, Chkdsk with both options checked from Windows, E: while online, C: on restart. No problems noted on any of the above checks.
Found from you the article on Microsoft Ask Question a thread on the 0x80070002 error.
They suggested deleting Windows media player network access and enabling Administrator account. Neither has help.
It will do a System Image. When Backup with System Image is run it states, shadow copy of C:, Creates and finishes System Image, begins shadow copy of E: drive and fails with the above error I believe referencing the E: drive.
I tried in both my account and the newly created Adminstrator account. Same results.
Currently shallow breathing into a brown paper bag and awaiting an assistance that is offered.
Oh, added system specs.