Rats - I was hoping you were not going to come back with Sophos. We have various issues with this virus scanner.

Uninstall/reinstall will not resolve this problem.

If you have not filed an SR on this issue please do so, so that this issue can be properly tracked.

As a wild guess, in the Configuration (Miscellaneous pane), turn off file compression. Maybe that is panicking Sophos (again, I'm guessing here).