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If game recording is disabled ("Recording Off" setting), obviously no background recording is going to happen at all.
@DragonStryder
Check your localconfig.vdf file located here:
C:\Program Files (x86)\Steam\userdata\<SteamID>\config
Exit Steam, delete that file and then start Steam again.
Warning:
You will have to go through the settings menu and set most of your settings again.
Delete everything in this folder (this is the default path):
C:\Program Files (x86)\Steam\userdata\<SteamID>\gamerecordings
Warning:
Don't do this if you have any game recordings / clips in Steam which you still want to upload.
Upload them before you do this, otherwise they will be gone.
This seems to have done the trick, thank you so much!