The feature pack that is supposed to fix quite a few issues was released on the 1st July. I seemed to have missed it even though my DPM server is subscribed to Windows Update.
Found out about it here:http://blogs.technet.com/dpm/archive/2008/07/01/dpm-2007-rollup-update-now-available.aspx
Details from Microsoft here:http://www.microsoft.com/downloads/details.aspx?FamilyID=e9e1fe35-b175-40a8-8378-2f306ccc9e28&DisplayLang=enhttp://www.microsoft.com/downloads/details.aspx?FamilyID=ad5cd1a2-9b87-4a2c-90a2-9dbaf1024310&DisplayLang=en
If you have multiple storage groups with the same data retention policies, you can now colocate the data