Central Administration "Perform a Backup" database portions doesn't seem to work

Hello Community

    In a Sharepoint 2010 Server installation running Windows 2008 Enterprise
Server on a dc (running SQL Server 2008 Enterprise) and member server
(running SharePoint 2010 Server) making up the farm.

    Using Central Administration performing a backup fails with the when the
backup location is c:\Backup with the following error -

Scenario 1:

    "Object ConfgDb failed in event OnBackup. For more information, see the spbackup.log or sprestore.log file located in the backup directory.
SqlException: Cannot open backup device 'C:\Backup\spbr0000\000000C0.bak'. Operating system error 3(The system cannot find the path specified.).
BACKUP DATABASE is terminating abnormally."

    On the other hand, if a backup location of \\Server1\C\Backup is entered the following error occurs -

Scenario 2:

    "Directory \\Server1\C\Backup does not exist or the SQL Server service account and the <domainname\username> service account do not have permission to read or write to the backup folder. Specify a different directory or ensure that the SharePoint Timer service and Microsoft SQL Server service accounts have Full Control permission on both the file share and the underlying folder."

    Scenario 2 doesn't make sense to me because on the Share drive letter
I added the accounts from SQL Server Agent, SQL Server Engine, SQL Server Integrate, the domain admin account the farm was created under and the
Sharepoint Farm account, all with "Full Control".

Scenario 3:

    A different error message appears if I try to do a backup on the dc
using the syntax \\Server2\C\Backup that error message is:

        "Access to the path '\\Server2\C\spbrtoc.xml' is denied."

    Scenario 3 error message doesn't make sense for the same reason
Scenario 2 doesn't make sense because here I also added the accounts from SQL Server Agent, SQL Server Engine, SQL Server Integrate, the domain admin account the farm was created under and the Sharepoint Farm account, all with "Full Control". 
 
    This is on a 2 server farm where the SQL Server was on the dc.

    Whats puzzling, however, when the SQL Server was on the same Server as
SharePoint 2010 Server, the backups worked fine.

    Most shocking is that, in Scenario 1 if I only select:
      
        "Backup only configuration setting"

    That backup Completes with no errors, in other words it seems its the database backup thats failing.

    It is when I select:

        "Backup Content and Configuration Settings"

    That is when all of the above errors are returned.

    Why does "Backup Content and Configuration Settings"?

    Thank you
    Shabeaut