Backing up Windows Home Server 2011 to 4K sector size disks

Last week my Windows Home Server 2011 box informed me that my external USB backup hard disk was beginning to fail.  Big props to the folks at Dojo North who supply a free SMART monitoring plug-in for Windows Home Server, otherwise I would not have known the disk was on the way out.

So yesterday I purchased a Western Digital "MyBook" 3TB external hard disk to replace this external drive, and configured the Windows Home Server backup to store data on this drive from now on.   Imagine my surprise when I see this the next morning:

OK, that was unexpected.  Wonder what the problem was?  Let's have a look at the detailed error:

The request "could not be performed because of an I/O error"?  Huh?

Well let's cut to the chase.  The problem is caused by Windows Server 2008 R2 (and Windows 7) not supporting disks with native 4K sector sizes  for storing of VHD files.  Don't confuse this with NTFS cluster sizes - that's totally separate and does not solve the problem.  

As we know, Windows Image Backups are VHD files, and so the backup fails.   Great.

So how do we fix this?  The only way to fix this problem in Windows 2008 R2 and Windows 7 is to force the drive to use 512KB Emulation mode on the low level format.  This is not something you can do with Windows format tool and must be done with a manufacturer tool.  Thankfully, Western Digital provide the "WD Quick Formatter" utility which allows you to reformat the drive to 512E mode.  This removes Windows XP support, but who the hell cares.

Here's what FSUTIL says about the drive before it was reformatted using the WD tool:

 And here's what it says after the reformat:

But my drive can't be reformatted to 512E mode!

Well my friend, you are hosed and either need to buy a drive that does, or upgrade to Windows 2012 (or Windows 8).