Solved!
I had the 0x80070057 error, too. I just got the SP1 update and still got the error. I thought it was an access issue but even using my default administrator account made no difference. This is the account that Windows 7 forces you to create upon installation or first use.
The solution for me was to activate the
hidden (also called "built-in") Administrator account. Log on to that account and I could create both a repair CDROM and repair DVD. Go back to my default administrator account and I get the old error message.
Note that switching users from your regular account to the Administrator acccount does not work. You must initially log on as Administrator.
For information on activating the hidden Administrator account, see (among many sites)
Built-in Administrator Account - Enable or Disable
Windows 7 Ultimate 32-bit, SP1