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The database I'm having problems with was on one virtual server default instance (VServer1). I moved it to another virtual server with a second instance of SQL Server(VServer2/MyInstancename).

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Change from default instance to named instance will definitly affect your ODBC setting that has to configured to point to named instance in format machinename\instancename or you created server alias for the second instance. I am assuming you have made the changes, otherwise, your application wouldn't work as you mentioned your users were able to access the data from one node.

I don't think backup failure is to do with what kind of instance running. You were tring to backup database to a device 'dbdevice' that has to be created in disks that disks resource must be in second virtual instance group.