See if this helps courtesy of MikeM.
Joan

Your System Restore problem sounds as if you either have a program that
creates a new wininit.ini file each time you boot your system or, more
likely,
that you are yet another victim of the "false Wininit.ini" problem.
System
Restore will not create a checkpoint when it believes the file wininit.ini
to
be present on the system since the presence of such a file is normally
indicative of an incomplete install where wininit.ini contains
instructions
to
be executed to complete the install (or uninstall) next time the system is
booted.  I suspect that the solution will be my second suggestion.

First, check that you don't have a wininit.ini file.  If you do, rename
this
to wininit.old and retry System Restore.  If this works then you possibly
have
a program that creates a wininit.ini file each time you boot your system.
One
known example is tgcmd.exe from the late lamented @Home another is a
program
called "ACCESS DENIED".  If you have tgcmd.exe I understand that disabling
it
in MSConfig | Startup will have no adverse effect on your system but
enable
you to use System Restore.  Likewise ACCESS DENIED needs to be "switched
off"
whilst using SR to either create or restore to a previous checkpoint.  See
also MS KB 274092 - "Error Message: System Restore Cannot Run Until You
Restart the Computer" (http://support.microsoft.com/?kbid=274092).

If this isn't the reason for your problem then try running
SCANREG   /FIX
from a command prompt such as Start | Run.   Note that the system will
re-boot
so don't have any applications open when doing this.  I suggest this
because
it appears the same message you are seeing is given not only when there is
a
wininit.ini file but also when the registry has been corrupted in some
way.
What that corruption might be I have as yet no idea.

If scanreg /fix doesn't do it I would then suggest you try using
SCANREG  /RESTORE
and restore your registry to an earlier version (you should be offered 5
options) after which hopefully SR will be enabled and can be used to
return
your system to the point you want.   After a long wait Microsoft addressed
this problem and recently issued a KB covering this.  See MS KB 303354 -
"Error Message: System Restore Was Unable to Create a Restore Point"
(http://support.microsoft.com/?kbid=303354).

Best of luck.
--
Mike Maltby MS-MVP
mcmaltby@hotmail.com