Symptoms

The error is reported while running a backup for sets configured with local storage option.
1) The DS-Client service account does not have rights ( "full control" permissions ) on the local storage path.
2) The device configured to hold the local storage backups cannot handle the writing of the data properly ( and just returning / reporting a misleading error "access is denied" to the Windows API fuction calls invoked by DS-Client application - devices confirmed to experience such issue are Buffalo or QNAP NAS devices, some other low cost NAS devices may experience the same issue ).

Solution

1) ensure the DS-CLient service account has full control permissions on the local storage path.

2) Use for the local storage path a device that can handle error free the Windows API functions calls ( if a NAS device is intended to be used for this purpose, use a robust brand such NetApp).
In one instance, this issue was found to be caused by HDD default configuration to hibernate after 20 minutes.