After you've used the sqbsetlogin extended stored procedure to use a SQL login for the SQL Backup service, could you please check if the setting was saved in the registry, under ServiceLogin in
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HKLM\\Software\\Red Gate\\SQL Backup\\BackupSettingsGlobal\\<instance name>
and if the SQL Backup Agent service startup account has rights to read from that registry node?
Alternatively, since there's only one user using that machine, you could set up SQL Backup to skip checking for backup and restore rights, by creating a SkipChecks DWORD registry value in the node above, and giving it a value of 1.