Windows SBS Client Backups not working

I have a Windows 8 client backup that does not work.

I select inidividual files from C:\ to backup but then I get the following error:

Backup cannot save a snapshot of the volumes on this computer because the computer does not have enough storage space available. 

To resolve this issue, either add more storage space to this computer, or free up some space on an existing drive. 



But, my C drive used 37 GB and has 660 GB free?

Please help.