I believe I've found the cause to this problem in version 3.29. I'm not sure if the problem carried over from previous versions (i.e. 3.26) but I've done some thorough testing of version 3.29 to figure out why I was getting the 'Unable to create intermediate backup' error.
As you'll see in my attached PDF, I believe what is happening is that the OPEN FILE/CLOSE FILE programming code isn't taking into consideration the directory within the path of the psafe3 file that is opened. The OPEN FILE program code is not as picky as the CLOSE FILE code since the file actually opens. However, when the CLOSE FILE command is issued, it errors out because it cannot locate the actual path of the original file as it appears it was not captured upon opening the file.
I hope my research helps to plug this hole and resolves the problem for good. :)