SQL Backups not completing successfully

Backup- <SERVERNAME>\MSSQLSERVER
V-79-40960-37914 - Database XXXX is configured to maintain transaction logs. Transaction log backups are not being performed. This will result in the log growing to fill all available disk space. Regular log backups should be scheduled or the database should be changed to the simple recovery mode.

Above is the error I receive when I try to include my SQL Server instance in my backup selection list for this client.

I am running Backup Exec 2012 on a Windows Server 2008 R2 trying to back up a SQL Server 2000 SP3 running on a Windows Server 2003 Enterprise Edition SP 2.

The SQL Server is set to Full Recovery Model, is NOT being backed up locally, the backup job on the BE Server is set to back up the log files on incremental backups and teh whole database on Full backups. These are the settings:

Is there a way to set the job up so the server backs up on Full backup AND Incremental backup and succeed without failure or exception?

Thanks