The DVR feature uses parts of Windows Desktop Composition.
In order for the video to be recorded, this Windows feature needs to be enabled.
Enabling the feature is usually as simple as using an “Aero” desktop theme.
http://windows.microsoft.com/en-us/windows7/what-is-the-aero-desktop-experience
If you are already using an Aero theme and still having trouble, here is a thorough procedure for enabling desktop composition:
http://www.sevenforums.com/tutorials/127411-desktop-composition-enable-disable.html