Most G1/HTC Dream users would have rooted their phones to maximise the usage of the phone (and extend the lifecycle of the product). In so doing, they run many different ROMS; I use CyanogenMod. The ease and safety of changing ROMS (imagine the OS version for a typical desktop computer) is astounding especially with the use of recovery tools that allow one to make a full backup of the current ROM along with whatever extension drives that are in the SDcard (since it is based on Linux, Android ROMs utilises ext 2/3/4).
I was using Amon Ra recovery tool, an excellent tool for recovery. But sometimes in performing a full Nandroid Backup, you may come up with this error: “run nandroid-mobile.sh via console”. In such instances, don’t worry… just connect your device to your computer and perform an ADB connection.
From your desktop console (windows environment I presume), type:
adb shell mkdir /system/sd
Voila. Perform your nandroid backup again and it should work. Basically, the error occurs because there is a missing /sd folder in your /system folder.
Works every single time. Enjoy and happy flashing ROMs!