Xp Machine Backup Failure - Following Creation Of New User

My WHs V1 has been happily backing up an XP machine. It only has a C: drive.
Recently added BBC iPlayer to record a few TV shows when on holiday.

I created a new user (admin rights + same password as server) and now a manual backup fails after 16% - determining what clusters have changed.

This is the event log:
Backup of volume C: to SERVER failed: System.Runtime.InteropServices.COM
Exception (0x8007045D):
The request could not be performed because of an I/O device error.
(Exception from HRESULT: 0x8007045D)
at System.Runtime.InteropServices.Marshal.ThrowExceptionForHRInternal
(Int32 errorCode, IntPtr errorInfo)
at Microsoft.HomeServer.Common.Client.Win32.ThrowLastError()
at Microsoft.HomeServer.Backup.NTFS.VolumeBuffer.EndRead()
at Microsoft.HomeServer.Backup.NTFS.ClusterBitMapReader.Next()
at Microsoft.HomeServer.Backup.BackupOp.BackupOperation.DoClusterPass1()
at Microsoft.HomeServer.Backup.BackupOp.BackupOperation.RunWithoutCatch()
at Microsoft.HomeServer.Backup.BackupOp.BackupOperation.Run()

Backup set 22 on SERVER failed: System.Runtime.InteropServices.COM
Exception (0x8007045D):
The request could not be performed because of an I/O device error.
(Exception from HRESULT: 0x8007045D)
at System.Runtime.InteropServices.Marshal.ThrowExceptionForHRInternal
(Int32 errorCode, IntPtr errorInfo)
at Microsoft.HomeServer.Common.Client.Win32.ThrowLastError()
at Microsoft.HomeServer.Backup.NTFS.VolumeBuffer.EndRead()
at Microsoft.HomeServer.Backup.NTFS.ClusterBitMapReader.Next()
at Microsoft.HomeServer.Backup.BackupOp.BackupOperation.DoClusterPass1()
at Microsoft.HomeServer.Backup.BackupOp.BackupOperation.RunWithoutCatch()
at Microsoft.HomeServer.Backup.BackupOp.BackupOperation.Run()
at Microsoft.HomeServer.Backup.BackupOp.BackupSetOperation.RunWithoutCatch()
at Microsoft.HomeServer.Backup.BackupOp.BackupSetOperation.Run()
I have researched and tried the following:

Ran chkdsk /f /r and rebooted.
Re-installed the WHS connector software.
Changed the VSS service from manual to automatic.

Cannot think of what else to try - any ideas?

Philip