This might be a unique situation but, we did found the cause to our situation with regards to this error.
Our SQL sever 2005 environment is running in a active/passive cluster environment. The AD account used for the cluster service was mistakenly setup with out checking the password never expires. Hence, the password had expired which generated this error when Litespeed was invoked to backup the databases. Only by rebooting the passive node did we realize this as it could not join the cluster. After setting the service account to have the password never to expire did the error go away.