You cannot create or mount VHDs on a disk with 4K sectors. The VHD format presumes the use of 512byte sectors, and the drivers that read and write data are optimised for this. The further reason is that Windows Server Backup uses VHD virtual drives as its file format. You can get a patch for Windows 7 and Windows Server 2008 R2 that fixes most problems, but it does not fix the backup issue. The reason is that most of these large drives have a 4K sector size, rather than the older 512 byte sector size. You might see error 2155348010 or 0x8078002A, or “The request could not be performed because of an I/O device error”, or some other error. Except that they often run into problems when used with Windows Server Backup. That seems fine: external USB drives with 2TB and 3TB capacities are now commonplace.
Windows Server Backup, and its command-line version wbadmin, work well enough, but users with growing storage requirements have been buying larger external drives. The recommended strategy for Small Business Server 20, for example, is to have a bunch of external USB drives and to use them in rotation. Windows 7 and Server 2008 R2 continue this policy. The built-in backup utility only backs up to hard drives. When Windows Vista and Server 2008 were released, Microsoft turned its back on tape backup.
