I am running SQL Server 2008 R2 Standard Edition on a Windows Server 2008 R2 Enterprise. I'm using the standard backup and restore for the server portion and the native SQL Backups for the databases.

I want to exempt the Transaction Log and Data File Directories from the Server backup because I am taking SQL Backups and I don't want to waste space backing up the same objects twice.

However, SQL Server cannot start without the Master database (and perhaps others as well). What's the best process/solution for this?

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Just back up the master and msdb databases too, same way you do the user databases. You can restore them as well:

http://msdn.microsoft.com/en-us/library/ms190190.aspx

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