Cannot setup protection of VM

[UWAdmin]

When trying to set up protection of a VM (this is true for VMs only but not all VMs) during the final step it fails with the following error:

Modify protection group: <protection group> failed:

Error 360: The operation failed due to a virtual disk service error

Error details: The parameter is incorrect

Recommended action: Retry the operation.

 

Allocate Replica For \Backup Using Child Partition Snapshot\<computer name> failed:

Error 360: The operation failed due to a virtual disk service error

Error details: The parameter is incorrect

Recommended action: Retry the operation.

 

Any clue as to what could be wrong?

 

I am running data protection manager 2007 SP1 version 2.0.8836.0 on Windows Server 2003 R2 x64 service pack 2. The VM is running windows vista x64 service pack 2 under Hyper-V manager (I believe all our hosts are all Vista x64 core).