It could be a permissions issue. Maybe AC is trying to use the local system account to authenticate against the network server.

Try mapping a network drive and then backing up to that.
Win 7: http://i278.photobucket.com/albums/kk94/sandeepluthra/Tutorials/3b11f13f.png

Win XP: http://s278.photobucket.com/albums/...ls/?action=view&current=1782cb11.png