The problem is now fixed. It was fixed by correcting another issue I had with the server since it was patched with SP2. The issue was whenever the server was busy, users running SQL or backup run ning the server disconnects itself and logs an EVENT ID 2020. After researching I found the information at the following location:
http://support.microsoft.com/default.aspx?scid=kb;en-us;312362
Since the registry hanges the server is now not disconnecting from the network and I am now able to select and run the backup with VSC components selected on the local Server.
Thank you.