Did you use the transfer wizard and send data to your recovery drive instead of your E drive??
Dell creates these RECOVERY drives on their computers specifically for the recovery files to be located. When the system performs its backup process, it is set to use that drive to store the files. If you start adding data to the drive, it loses it's space for recovery items.(Hence the RECOVERY C Disk Full message) Make sure you delete all files from there except the recovery files and see if that helps. Run the windows backup and see if it gives you that same error. From now on DO NOT save your personal data to that drive. It is a recovery drive. If you wanted to set your recovery drive to a different location, that is possible through the backup manager.
If you wanted to format your Recovery C: drive (assuming you aren't running your operating system on it), !!!
and don't mind losing the original image file from the factory!!!
, you can click Start button, then Right-Click the Computer button and click the manage option... on the left pane should be a 'storage' drop-down and under that is a 'disk management' option... click that option. The hard drives (and removable drives) should show up in the main window. You can right-click your drive and click format and it will format the drive so it shows as empty. After formatting the drive you need to run backup again and get a new image file created in the recovery drive. I'm not positive a recovery drive is able to be formatted though.
I would suggest cleaning that drive out simply by deleting all files that aren't located in the dell recovery folder first. If that doesn't work, run backup and set the location to a blank dvd for now. Every time the backup runs, it will save to that DVD, provided you leave the DVD in the disk drive.
I hope someone with more knowledge will chime in here and help you fix your issue without having to format. But if you are wanting to format (again, assuming your drive C is not the primary O.S. drive), the steps above will get you there. I'm not a genius when it comes to backup/recovery issues.
Whiskey brings up a good point... hopefully in all your mess of things going on, you didn't accidentally install Windows to your recovery drive.