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Indexing a file failed. Returned -1120 for: /Applications/.localized
That's a hidden file in your Applications folder. I have no idea what it is or where it came from.
Exclude it from backups, per the blue box in #C3 of Time Machine - Troubleshooting.
Time Machine is going to do a large backup (about 170 GB). If you get a similar failure, see the pink box in that same link.
If it does complete normally (it will take a while), then you need to figure out what that file is and what to do about it.
I just solved hung time machine on my mac pro running osx 10.7.3 by updating the driver for a LaCie eSeta PCI card.
I am connected to a rugged xl drive that partitioned fine, and i got time machine going,
but too often i had to disconnect the power to stop an endless preparing message.
I didn't know to look at the log... but I should have been suspicous when i saw the drive wouldnt eject right in finder, the desktop links would just go gray.
I found a new and good driver on the card's Original Equipment Manufacturer's site by searching the internet for the string that is in About This Mac / More Info / System Report / PCI Cards: 1095,3132.