Symptoms

The error might pop-up when attempting to create a SQL Server backup set (traditional) or when editing the backup items list for such set.

Cause

TLS 1.0 and 1.1 have been disabled on the computer holding the SQL Server instance to be backed up.
If the set was created successfully prior to disabling TLS 1.0 and 1.1, the backups will fail and report two errors:
"Backup stopped: Failed to connect to backup set source."
"Failed to open dataset!  (select 2, 'ProductVersion', 0, convert(nvarchar(200), serverproperty('ProductVersion')) )

Workaround

Ensure that you run:
Windows DS-Client v13.3 hotfix 6 or higher
Windows DS-Client v14.0 hotfix 1 or higher
Newer versions like v14.1 already include the fix.

Additionally, please implement the changes below:

1. Install ODBC driver 13 for SQL server on the DS-Client computer (download link: https://www.microsoft.com/en-us/download/confirmation.aspx?id=53339 )
2. On DS-Client computer, open registry (Start > run > regedit) and under the registry path HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\services\DS-Client\Parameters create a new string value with the name:
SQLServerDriver
once the value created, double-click on it and set its value data to:
ODBC Driver 13 for SQL Server
3. Restart the DS-Client service, edit the backup properties and check the connection.
Please note that on the backup source computer and DS-Client computer, some Windows operating system updates as well as SQL Server updates might need to be installed:
TLS 1.2 support for Microsoft SQL Server : https://support.microsoft.com/en-us/help/3135244/tls-1-2-support-for-microsoft-sql-server