Feeling like I should do some testing myself with CB - I'll report back some results. As for the VM backup option I did already successfully test that. A VM on our Windows Dedup drive backed up while running - the backup completed successfully though I didn't test a restore from that backup. This was only a full backup, didn't attempt partial/block-level.

Thank you both for the information. I understand that the CB image backup will expand the drive's backup size to the 1.5TB. In this case if I had a restore scenario of just one of the VMs included on this image can I successfully browse the backup image and restore the folder/files of the one VM? Looking for a positive if loosing all of the gains of the Windows Disk Deduplication.