Mmm... I came to conclusion it was corrupt file because I tried to unzip it with command line unzip and with Stuffit on my Mac - however, I stand corrected there.
FYI - it was two different versions of Moodle on the same machine running RedHat 9. I changed the system variables (just in the one creating the backup come to think of it) to point to the command line zip and unzip and after that all was well.
I've no idea what happened