The System backup worked (sort of). It actually did a clean restore from a drive image to the original boot drive - without Windows running.
I had a problem backing up an image from a Raid 1 drive to a non-raid drive. The drives where exactly the same size, but the image restore program just said the available drives won't work. I think the Windows backup just can't backup Raid to non-raid drives.
I re-installed Windows on the non-raid drive. Worked.
Did a backup AND resore (with drive formatting), Worked
Then did a backup of a backup. Got some wierd "shadow copy could not be created." 0x80780119 error.
It seems the first backup used some System Reserved partition space.
This cleared enough space for another backup:
Right click on computer
Highlight C drive
Click delete all restore points
googling also found this command, but I'm not sure if it works.
fsutil usn deletejournal /N /D F: