Probably, it is your short date string - it contains "/" characters.
Instead of
DateTime.Now.ToShortDateString();
Try
DateTime.Now.ToString("yyyy-MM-dd");
Which will put it in ISO format.
You also want to remove some of the single quotes from your sql statement...
string sqlQuery = "backup database SMS to disk = ''" + backuppath + "' + 'SMS' + DateTime.Now.ToShortDateString()'";
generates:
backup database SMS to disk = ''D:\temp\' + 'SMS' + DateTime.Now.ToShortDateString()'
so you probably want:
string sqlQuery = "backup database SMS to disk = '" + backuppath + "SMS" + DateTime.Now.ToString("yyyy-MM-dd")+ "'";
which generates:
backup database SMS to disk = 'D:\temp\SMS2012-07-20'