db_owner does not have access to Windows folders
I searched for this error before posting and could not find a result. After posting, the answer came up as a related question:

Error while taking backup using SSMS

To quote from that question:

"Here is answer for my own question SSMS uses "xp_fixeddrives" to list the drives in PC. Same is used by SSMS when clicking on button which is used to select backup path or browse directory.

The error is generated because "exec xp_fixeddrives" doesn't return any records when executed by a non-sysadmin account.When you run the same using user having sysadmin permission then "exec xp_fixeddrives" returns the list of drives. So it is the problem with SSMS ,and it is not a problem with any permission to the folder or account under which SQL agent services runs etc.(I have tested the same)"

One thing to add is that this only affects local SQL logins and not Windows Authentication accounts.