Windows Backup failing due to false folder reference

I have setup Windows Backup on Windows 7 64 bit. The backup copies files from the C drive (and the system image) to a network location. There are NO references to other drives when I go through the Backup settings.

Problem is that the job fails with the error The backup was not successful. The error is: The file or directory is corrupted and unreadable. (0x80070570). Note that the job is partially successful, it' just that one folder thats generates the error.

The folder it cannot find is located at my Z drive. It is very true that the folder is not located at my Z drive anymore. But what I can't figure out is why Windows Backup still thinks it should try to back it up.