Hi Kaushal,
I want u to try out few things
1)Try creating a new selection list and see if you are able to select the SC option because if you are using old selection list there might be some problem as you have applied the service packs and the patches.
2)If you are still not able to select it then check if ntbackup is working for the main Win2k3 machine to backup the system state because 2003 uses VSS for backing up the system state so that we can isolate the issue.
3)Microsoft has acknowledged this as a memory leak in the code of the Volume Shadow Copy Service (VSS)
Backup Infrastructure and there is a hotfix provided for the same.
please refer to the following technote
http://support.veritas.com/docs/263139
4)There is another hotfix by microsoft you can go ahead with that as well ,the link is
http://support.microsoft.com/default.aspx?scid=kb;en-us;833167
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