I had a similar issue. The problem was with my file compression software. I was using PowerArchiver which I replaced with jZIP and the problem disappeared. Let's see,
1. Download and Insatall jZip. (http://www.jzip.com/)
2. Open your local Dropbox folder and locate wpTimeMachine-content-files.zip
3. Don't download the archive to your local hard drive. Rather right click the file and under jZIP, select extract to and specify a local path (I used, C:\Documents and Settings\user\Desktop)
This is the configuration of my WP Time Machine plugin.
1. File format: .zip
2. Stop using Post Publish event to trigger backups
3. Use time-stamped subdirectories to store multiple backups
4. Exclude cache related directories (I'm not using a caching plugin. Still I decided to exclude cache related directories)
Tell me if this works...