The first problem is your choice of "as-is". It has to be "manual" and then you will have to adjust the 100 meg partition back up to 100 meg. Once you do that, clone and you should be fine. What you want is to map the system partition 100 to 100 and the 1T to down to 120. If you use as is it will try and create a 1T partition. If you use auto it will reduce "Both" partitions proportionally. Manual lets you choose what you want and tune the partitions to the correct size.
Success!! Thanks for the suggestions. I manually cloned the drive as you said after disabling and re-enabling restore points. Had a minor issue with setting the reserve partition as 100mb. The acronis program (or intel rebranded progrma) limited me to 27mb for the reserve partition. It would not let me expand it to 100mb. I had to reduce the size of the remaining drive partition by 75MB as unallocated space between the two. Then i could expand the reserve partition to 100MB and finally reduce the unallocated space to zero. Hopefully i did not mess up anything else. It seemed to work and now WHS backed up fine (atleast it said so!). I am sure you all know these issues with the cloning software but thought id mention it in case someone else was facing the same problem and chanced upon this thread.
Thanks everyone for the help!!