I've had this problem with system restore for as long as I can remember with Windows 10, and have had to reinstall windows from USBbecause this problem has actually prevented Windows 10 reset from working too!
Microsoft Windows has this nice functionality to protect you when Windows dies, but you can't use it if you are using Microsoft cloud software.
Good job MS and what do your QA and testing teams actually do ?
I don't understand why it's even failing as its "users" folder so should be data, except that now even MS programs/software gets installed into this location due to UAC.
Of course installing new software will create an automatic restore point that wont work because it won't disable one drive nor prompt you.
On the plus side, once you have a USB image, it only takes half hour to install.