Hi softskiller.
I really don't think it's a Defraggler bug, or even a Defraggler problem as such.
As explained above, with Vista and Win7 having a default 4kb cluster size, Windows can't tell the difference between defragging and normal file writes, I/O (In/Out) procedures.
The System Shadow Copy provider uses a copy-on-write mechanism that operates at a 16-KB block level. This is independent of the file system's cluster allocation unit size. If the file system's cluster size is smaller than 16 KB, the System Shadow Copy provider cannot easily determine that disk defragmentation I/O is different from typical write I/O, and performs a copy-on-write operation. This might cause the Shadow Copy storage area to grow very quickly. If the storage area reaches its user-defined limit, the oldest shadow copies are deleted first.
Windows is making backups of every file defragged. The results of this will be more pronounced if you use the "Move Large Files To The End Of Drive During Whole Defrag" setting, or any similar setting in other third party defraggers.
Every large file moved will be backed up by "Volume Shadow Copy".
Thus "System Volume Information" will pretty quickly expand until it reaches it's set upper limit, and then "Restore Points" will be deleted to maintain that upper limit. The amount of free space you have on your Hard Drive is immaterial, as it's the designated upper size limit which decides when System Restore points will be deleted.
How to Change Vista/Windows7 System Restore (System Protection) Disk Space Usage Size Limit
If you don't get this problem using Windows own Defrag utility, then it seems that MS have coded it in such a way as to avoid the 4kb cluster size I/O confusion. I've no idea about that.
The only thing I would suggest is to try other third party defrag programs, and find out if the same problem arises.
If you find one which doesn't trigger the "Volume Shadow Copy" service, then hang on to it, and if you wish, by all means inform us about it.
I'm pretty sure the devs are well aware of this, but as it's more an Operating System issue than a Defraggler one, I have no idea as to whether anything has changed with the latest version of Defraggler, or will change with a future one.
I don't know what else we can tell you about this except repeat the above answer each time the issue is brought up, and suggest maybe a visit to the Vista or Win7 forums where I'm sure the subject will have been raised.
Hope that helps.