>We've had more than one customer that didn't realize that it's not a good idea to keep backups on the same physical drive as the software. Even had more than one irate IT manager that DEMANDED that we "FIX the OBVIOUS BUG" in our software because he was unable to restore the backup of the data that was stored on the crashed harddisk... Had to fight really hard the temptation to call the guy an idiot.

I just politely ask for an Order No. and advise them that I can send the disk to a Data Recovery facility and that the costs can be quite high.
I know the clients want us to be responsible for everything, but if they carry on like your IT Manager you probably don't want them as a client.