Thanks Perry and Jamie,
I've got this solved somewhat. Here's the explanation. The backup agent for disk file backups triggered something in the Volumne Shadow Copy (VSS) service that generates backup commands. By disabling the SQL VSS service this fixes the problem. Here's more detail.
The VSS service can be used to perform live backups of databases or files while they are in use. When the backup agent executes VSS commands the SQL VSS agent executes full DB backup commands with the Virtual device. I noticed that a point in time restore failed because of the Full back that did not have an accessable disk file.
The virtual backups are useless to me and wreak havoc on restores. Our intent is to run normal DB and log backups and move the files offsite using the backup agent. Disabling the SQL VSS agent fixed the problem for SQL2005 DB's but not SQL 2000 DB's so now I must find a way to disable the SQL 2000 VSS agent.
In any event, I would not recommend using the VSS service unless there is a good way to work around the restore problem, or unless you need to make live DB backups using your backup agent.
BTW - there were no backup devices returned by the query.
Hopefully, this will help somboday else in the future.