System Volume Information is the shadow copies that System Restore makes. They are system files and cannot be moved off of where Windows puts them in the hard-drive(I think it is so System Restore will know exactly where to find them when they are needed, but I am not sure). Defraggler will try to move them to fit with everything else, and it will look to Defraggler that it moved the file(because it copied it), but Windows does not allow overwrite of the old version.
Thus, defraggingC:\ System Volume Information actually fragments the drive more and takes up more hard-drive space.
Here is what you should do. Go to system security, create a new System Restore Point. Open CCleaner and delete all your old System Restores.
*Optional if you want to restrict amount of space system restore uses*
Open command prompt(run as admin if you are in Vista or 7).
Type the command: vssadmin resize shadowstorage /For=C: /On=C: /maxsize=[value]
In Vista, value must be a size, for instance, 20GB. In 7, it can be a percentage, for instance, 9%.
XP and WIN7 allow you to do this with a slider in System Protection if you want. You must do it with cmd in Vista.
This will restrict how much space System Restore can use. Default is 25%, so I suggest you resize it. Mine is at 7%(35GB)
*End optional*
Open Defraggler and in the options, exclude C:\System Volume Information\*
Defraggler will just skip those files from now on.