Backup Image Error / Cannot Create Shadow Copy / VSS error

I am trying to create scheduled backups for my computer on an external drive (H:\) and am having a bunch of trouble. I had one successful attempt but did not have "create image of C:\" checked. I chose to check it and attempt again. No success. I unchecked the image and now cannot create any backup. I received the following error:

A shadow copy could not be created. Please check "VSS" and "SPP" application event logs for more information. Details: Insufficient storage available to create either the shadow copy storage file or other shadow copy data.

It can't be a space issue because I have 260GB of free space on H:\ The only thing else on my external drive is my iTunes library. I've posted a similar thread before but got no where.

Please advise any thing. I'd feel more comfortable knowing I have backups.

Have you checked in System Properties to see if System Restore is enabled on your Windows drive?

Could you be a bit more specific? I believe it's enabled. I'm walking through the backup steps through Control Panel\System Security\Backup and Restore. Under System Properties of My Computer, I notice the Protection Settings say off for my H:\ drive but Yes for C:\.

If you have a separate 100MB system reserved partition use "Disk Management" to see how much free space exists on this partition.

There is 68.4 MB free space and 31.5 MB used on my System Reserved partition.

As long as you have 50MB free that's not the problem.
Try from start orb search enter
services.msc

Check that both
1) Volume Shadow Copy
2) Microsoft Software Shadow Copy Provider

are set to Manual (recommended). Automatic should be ok.

What is the specific error number/message you get if you just attempt a system image manually from the "Create a System Image" on the left of the Backup & Restore main screen.

I have 2 external drives. I chose not the 260GB drive but now a larger one (785 GB free space) to point to for this image. This is the error that I got.