Everyone on the net seems to think this is impossible to do... however, they're wrong. You can exclude files and folders from Vista's backup and restore by adding them to the FilesNotToBackup registry key, which lives under HKLM\System\CurrentControlSet\Control\BackupRestore.
For instance, I don't want to back up my virtual machines for Virtual PC (why back up 4+ GB of stuff that's meant to be ephemeral??), so I added this to my registry:
Name=VirtualPC Value="C:\Users\Aaron Ballman\Documents\My Virtual Machines\*"
That will exclude all files and folders within my virtual machine folder.
For more information about this and some official documentation, see MSDN.
This does not work, I have tried it multiple times now and no matter what key you add it still backs them up.
does not seem to work at all for me, can you please provide more information? are you sure it is actually working?
Microsoft seems to have closed this loophole in one of the hotfix releases (not certain which one), as this no longer seems to work. Alas...