When backing up a portable drive (e.g. Source Folder is set to @drive@), a temporary file is created within that drive. As a result of that, if you don't have enough free space, that file can result in using up all the space on the drive and the backup failing.
Would it be possible if that file was kept in the temporary files folder instead (e.g. C:\Documents and Settings\Username\Local Settings\Temp), or in the same folder as the destination of the backup?
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