Note : This is all regarding Linux and free software, as that's what I mostly use, but you should be fine with a syslog client on Windows to send the logs to a Linux syslog server.
Logging to an SQL server:
With only ~30 machines, you should be fine with pretty much any centralised syslog-alike and an SQL backend. I use syslog-ng and MySQL on Linux for this very thing.
Pretty frontends for graphing are the main problem -- It seems that there is a lot of hacked-up front-ends which will grab items from the logs and show how many hits, alerts etc but I've not found anything integrated and clean. Admittedly this is the main thing that you're looking for... (If I find anything good then I'll update this section!)
Alerting: I use SEC on a Linux server to find bad things happening in the logs and alert me via various methods. It's incredibly flexible and not as clicky as Splunk. There's a nice tutorial here which guides through a lot of the possible features.
I also use Nagios for graphs of various stats and some alerting which I don't get from the logs (such as when services are down etc). This can be easily customized to add graphs of anything you like. I have added graphs of items such as the number of hits made to an http server, by having the agent use the check_logfiles plugin to count the number of hits in the logs (it saves the position it gets up to for each check period).
Overall, it depends on how much your time will cost to set this up, as there are many options which you can use but they aren't as integrated as Splunk and will probably require more effort to get doing what you want. The Nagios graphs are straightforward to set up but don't give you historical data from before you add the graph, whereas with Splunk (and presumably other front-ends) you can look back at the past logs and graph things you've only just thought of to look at from them.
Note also that the SQL database format and indexing will have a huge effect on the speed of queries, so your idea of fulltext indexing will make a tremendous increase to the speed of searches. I'm not sure if MySQL or PostgreSQL will do something similar.
Edit : MySQL will do fulltext indexing, but only on MyISAM tables prior to MySQL 5.6. In 5.6 Support was added for InnoDB.
Edit: Postgresql can do full text search of course: http://www.postgresql.org/docs/9.0/static/textsearch.html
This Technet article on VSS scalability indicates that the issue probably relates to exhaustion of the nonpaged memory pool which is limited to 256MB on Windows 2003 32bit (x86). VSS uses more resources during snapshot creation and the article specifically states that a 5TB snapshot would require 200MB for that snapshot alone. Depending on what else is making demands on the non-paged pool it seems likely that you are hitting that limit.
For what it's worth 64bit systems have a much larger nonpaged pool and would not suffer in the same way.
The "not enough storage" error generally indicates exhaustion of system resources like the non-paged pool or heap exhaustion in my experience and does not typically refer to either disk or general memory.
Best Answer
If you're running it on the command line you're out of luck. If you run it in the GUI interactive mode there's a progress bar.
Since the process is really designed to run in the background quietly once a month I'm assuming the programmers didn't see a need to write a progress indicator into the command line version.