It’s generally best to store a backup on different media than the media that you’re backing up, if only to avoid a single point of failure. After all, what good is a backup if it’s destroyed together with the disk you need to recover?
However, if your AD domain has multiple DCs that replicate with each other (as it should), then you have a replacement for every DC and its backup. In that event, you might decide to do a DC system-state backup to source media anyway.
Although it’s technically possible for the system-state backup to be stored on the source volume, Server 2008 doesn’t let you do so by default—you need to tweak the registry to enable backing up to the source. Open the registry, navigate to HKEY_LOCAL_MACHINE\SYSTEM CurrentControlSet\Services\wbengine\SystemStateBackup, and add the DWORD value AllowSSBToAnyVolume. Setting AllowSSBToAnyVolume to 1 enables system-state backups to any volume, including the source volume, such as C. Set the value back to 0 to revert to the default Server 2008 behavior.
Remember that backing up to the source doesn’t allow bare-metal recovery. For complete recovery of a broken DC, you must reinstall the OS before you can perform a system-state recovery.