Microsoft SQL fails to create Backup inside Directory

That bug report seems to indicate that it is to do with the Mount Manager and maybe rclone is discarding the special path \\.\S - you don't seem to be using that path in the example above though?

Something you could try is mounting it on a directory instead of a drive letter, so instead of S: choose an existing but empty directory say C:\gdrive and use that instead of S:

If that doesn't work we'll have to call in the experts - @albertony is good at Windows file systems.