Originally Posted by Amon_RA
As of HBOOT- 0.35.x the size of the recovery partition is reduced and the size of the boot partition is increased (they probably did this as a preparation for Gingerbread). So depending on the amount of bad blocks in your recovery partition it could be the case that my recovery doesn't fit anymore. In that case you'll get the error you are seeing.
I'll post a smaller version soon which fits on N1's flashed with a 0.35.x HBOOT.
This is very interesting.
FWIW, I've been using (and loving) the 2.0 recovery for quite a while. But yesterday I upgraded my HBOOT from 0.35.0012 to 0.35.0017 so I could try on the first gingerbeard AOSP port. When I did, the recovery started behaving badly and would not complete backups, restores, and a couple of other things I can't remember. I tried reflashing it, but got the 'not writing bad block' error. I ended up having to flash clockworkmod over it, then problem solved and I got to play with GB.
Now I've restored things back to my old CM6.1.1, and am trying to bring back 2.0 recovery, but no dice - same old error.
I'm thinking that HBOOT 0.35.0017 just doesn't allow room for your sweet recovery.
Thanks for the tip, I'll go back to 1.7 or 1.9 until you calmly work another miracle.