I've gotten Zeldahantom hourglass to work properly with the arm7 patch and I can play properly it as long as I don't actually play another game.
I seem to come across a little problem with the auto backup system.

It keeps telling me
"Warning! NDS GAME SAVE in card but CANNOT find ATUOSAVE backup file. Backup fail! Press A to continue."

Its pretty bad since I can play Zelda but not other games, because if I play other games (or even use any homebrew for that matter) all the hardwork I put into Zelda magically disappears.

Can anyone offer me a solution?

 

Are you sure you didn't just copy the game to your M3 using explorer or some other filemanager? You have to use the M3 game manager to create a blank save file properly.

As g6team suggests, flash your M3 with the newest firmware. Zelda's save ram is twice as big as most other games. Older firmwares can't handle that.