After upgrading to latest PC Suite I kept getting this error:

Backup Status
Fail

Remarks
Cancelled by mobile phone.

This is what I did to solve it
1. I switched the cable to another USB port
2. deleted old backups and Backup Archive folder
3. uninstalled a trial application that was past trial period (as per today): it was Easy Search
4. I did NOT reboot XP, nor did I re-install PC Suite.
5. I backed up first the contacts, calendar, settings, notes, unified inbox but I did not check apps/multimedia: this gave me the first success
6. Then I backed up just apps and multimedia: success

Hope this will save you time

hm.. well as for me, i did a manual backup of contacts, docs, and as for apps, always have them in my pc.

then i would do a master reset, then did the fw update. heh. ^^

This "cancelled by mobile phone" problem seems to be caused by having licence-expired applications on the phone. I removed two apps that were complaining because the trial licence had expired, and the problem went away.
Thanks!