The master boot record (MBR) disks can support up to 2 TB, which is the limit for MBR disks. I have seen the following error messages in DPM when creating Protection Groups:
Error 360: The operation failed due to a virtual disk service error
Error details: Unknown error (0x80042515)
Recommended action: Retry the operation
If VDS service is running and you can create/allocate drives from disk management, make sure you are not trying to allocate more than 2 TB disk space. If you need to allocate more than 2 TB disk space, use GUID Partition Table (GPT) disks instead of MBR.
Here are some good references: