sqlwriter error + failure audit error + vss problem + SQL Server + Networker 7.6 + VMDK Backups

Hello,

I am a newbie in Networker.

I am trying to backup a virtual machine via the VCB.

However,  I keep getting those errors a few times (one after the other).

Event Type:    Failure Audit
Event Source:    MSSQL$ASCENTCAPTURE
Event Category:    (4)
Event ID:    18456
Date:        7/12/2010
Time:        12:03:48 PM
User:        NT AUTHORITY\SYSTEM
Computer:    SVR-KX1AA
Description:
Login failed for user 'NT AUTHORITY\SYSTEM'. [CLIENT: ]

For more information, see Help and Support Center at http://go.microsoft.com/fwlink/events.asp.
Data:
0000: 18 48 00 00 0e 00 00 00   .H......
0008: 1b 00 00 00 53 00 56 00   ....S.V.
0010: 52 00 2d 00 4b 00 4f 00   R.-.K.O.
0018: 46 00 41 00 58 00 31 00   F.A.X.1.
0020: 41 00 41 00 5c 00 41 00   A.A.\.A.
0028: 53 00 43 00 45 00 4e 00   S.C.E.N.
0030: 54 00 43 00 41 00 50 00   T.C.A.P.
0038: 54 00 55 00 52 00 45 00   T.U.R.E.
0040: 00 00 07 00 00 00 6d 00   ......m.
0048: 61 00 73 00 74 00 65 00   a.s.t.e.
0050: 72 00 00 00               r... 

Event Type:    Error
Event Source:    SQLWRITER
Event Category:    None
Event ID:    24583
Date:        7/12/2010
Time:        12:03:48 PM
User:        N/A
Computer:    SVR-KX1AA
Description:
Sqllib error: OLEDB Error encountered calling IDBInitialize::Initialize. hr = 0x80040e4d. SQLSTATE: 28000, Native Error: 18456
Error state: 1, Severity: 14
Source: Microsoft SQL Native Client
Error message: Login failed for user 'NT AUTHORITY\SYSTEM'.
DBPROP_INIT_DATASOURCE: SVR-KX1AA\ASCENTCAPTURE
DBPROP_INIT_CATALOG: master
DBPROP_AUTH_INTEGRATED: SSPI

For more information, see Help and Support Center at http://go.microsoft.com/fwlink/events.asp.
Data:
0000: 53 51 4c 43 4f 4e 4e 43   SQLCONNC
0008: 36 30 36 00 00 00 00 00   606.....
0010: 53 51 4c 43 4f 4e 4e 43   SQLCONNC
0018: 34 33 38 00 00 00 00 00   438.....

Now,
I have assigned that service and the other SQL Server services to Local System Account as the "log on as".  But no use.

I remember when using backup exec I got the same error, then they instructed me (as well as the current EMC Networker support) to change the log-on account to local systems.

Backup Exec team told me also to install BEVSSPROVIDER back then to help with the VSS backups.

I don't know what to do.  Please help

Thank you

Machine to backup

Server 2003 Std SP2

SQL Server 2005