This info comes courtesy of Andrew Delozey at Interprom.
The Issue:
Nightly backup was repeatedly failing within one minute of starting.
The Error:
Volume shadow copy creation: Attempt 1.
“MSDEWriter” has reported an error 0x800423f4. This is part of System State. The backup cannot continue.
Error returned while creating the volume shadow copy:800423f4
Aborting Backup.
The Details:
Initially when this was entered into Google SBS 2003 groups and general Google web searching there were many results returned referencing Simple Recovery Mode on SQL database installs. After speaking with Microsoft Support they clarified that the problem was more specific to Volume Shadow Copy services needing a hotfix (891957)applied so that they are readable by the backup wizard in SBS 2003.
The problem was actually how the SBS backup wizard was seeing VSS. Oddly enough the backup would start if you just ran NT backup but failed when starting the backup with the SBS Backup wizard.
The Fix:
There is a hotfix for KB891957 that once installed requires a reboot. SP1 was installed on this box but I’m not certain it’s a prereq.
Once the hotfix was applied and the server rebooted we ran a test backup using the SBS Backup Wizard. The backup started successfully which it had not done prior to the hotfix being installed. That night the backup ran all the way through successfully, the problem was solved.
Thanks for the heads-up Andrew!