I have another physical server that I can use as a storage node, but do I have 
to have the tape on the storage node or can I still use the NW server?

I would assume this.

Storage Node is connected to SAN LAN
Storage Node is configured for VCB
Storage Node is a client of NW server

NW Server starts group the Storage Node belongs to and runs save_vcb.bat which 
copies VM from SAN to local drive on Storage Node. The NW server then backs up 
the storage node and the vm's copied to it.

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