Further to my posts on January 8, 14 and 19. After many, many hours of excellent assistance from MS Consumer Technical Support, we agreed that there was no option but to implement a clean install. That was done after backing up files, etc., using MS
approved firmware Acronis (which is not that great but it does the job), and also after using Windows Easy Transfer to export to the same external HDD (for insurance!). The clean install fixed the backup problem, and the WET data was then imported back to
the same machine (like it was the 'new' one). Two cautions:
1. Using an upgrade disc to implement a clean install is not simply a matter of using the 'Custom Install' option. Technical experts might be OK, but In my case MSCTS assistance was essential.
2. The upgrade disc Key was rejected for Windows 7 activation. However, leaving that field blank I was able to proceed on basis of the 30 days pre-activation option. Reverting to MSCTS brought a solution to validate the upgrade Key for the clean install.
Conclusion: anyone using an upgrade Vista > Windows 7 disc should go for a clean install until whenever MS release a repair update for this backup failures problem.