Portable App Backup automatically uses the system %TEMP% directory to create the actual backup file. This is not working very well for relatively large portable hard drives which often by far exceed (even when compressed) the maximum available disc space of the drive where the %TEMP% resides on.
Since the 7za tool has a parameter (-w) which could be used to customize the temporary working directory, I actually don't see a reason to not use this. A simple file dialog letting the user choose an arbitrary directory would do.