Well, I spent far too long looking for a solution online for this problem I decided to get this posted online to help someone else if they ran into this issue.
Below is the documented procedure that I discovered to repair a VM that is stuck in this state, not allowing you to take a successful backup.
Open an administrative PowerShell terminal, and let’s gather a few variables before we run the disk allocation fix.
$NewSize = $CurrentSize + $VMSize
Okay now you must start this service Optimize Drives, most likely this service was disabled by default. If you do not enable this service the next command will not work, and you will receive a very generic WMI error.
Now that you have the Optimize Drives service enabled, run the command below.
Now, open the Microsoft Azure Backup Server Console, and re-run a verification job against the VM in question. This should now succeed, and you will now be able to take a valid backup of this VM once again!
Unfortunately I do not have a fix for this problem, and can only offer this as a solution if this does pop up for you.
I hope this helps, have a great day!
Thanks,
Ted