Scan Disk is amazingly silent on this point. It just says it can't do it, but doesn't explain. (A bit like some kids I've met.)
So I'm clear on the point...I erased the external hard drive and reformatted. I did not erase the C drive in my computer. I think it's the C drive having problems though. Scan Disk fails to scan the C drive. Scan disk is fine scanning the external drive (to which I store my back up files). I wondered if scan disk doesn't like to scan the active boot drive (or something like that). So, I then booted from the original Dell WinXP install CD. The Windows XP installation CD also scanned my C drive (when I booted from the CD) and found no errors on the C drive.
Also, strangely, I was able to back up my C drive "Documents and Settings" folder to an external DVD today. It showed the exact same -1127 error, but Retrospect decided to go ahead and back it up anyway. I got the vast majority of the files just fine. During the DVD set backup it said there were 4 execution errors.
I went and tried to delete the offending 4 files later. (Surprisingly challenging, since they were all hidden.) After this, I again tried the script to backup to the external USB drive. Again, error -1127. This time, again, Retrospect stops and won't back up anything on my C drive. If it wasn't so frustrating, it would be incredibly funny. It think it's possessed. Erasing the C drive and reinstalling everything might be the final solution. (Ugh! there goes my Saturday.)