SO is backordered but stock exists to be able to release order

We have a Sales Order that is backordered when the Pick Release process is run.  When we then submit the pick release for backordered items, as there is stock available, the move order is created but we cannot allocate the stock to it.  When selecting the line and clicking on the Allocate button, we get an error : "Error : The Material Sourcing process failed to create picking suggestions for line 1 of mover oder xxxx."  The nove order then disappears and we cannot progress the order. 

The ohq is showing as qty 3 - available to transact and reserve.  SO qty is 1.

The sales order shouldn't be on backorder - how can we progress it?