Try this. Right click [My Computer] [Properties] then click on System Restore tab. Put a check in the box for Disable Restore on all drives. Click apply, then Reboot your PC. After the system reboots, navigate to the System Restore tab and turn it back on. Click apply. Navigate to [System Tools] [Restore...] and choose [Create a Restore Point] Provide a name for the new restore point. Try and restore the new point just created. It should work properly.
I have never used Drive Image 7, so I don't really know However first did you reinstall after formatting XP or did you repair it. Second does Drive Image 7 create a partition on your hard disc, if so it may work if you clear the partion and then wipe all free space on that drive and then defrag. You should then do a clean reinstall of Drive Image 7.I had a similar problem with Acronis and that was how I solved the problem. But I must stress I know nothing about Drive Image 7. I am still a bit sceptical about your backup not working in Wizard mode.