Fixed upstream with:

commit 71802685ba49a80326d69fd446d2f25844526ba8
Author: Peter Krempa <pkrempa>
Date:   Wed May 14 09:43:52 2014 +0200

    qemu: snapshot: Terminate job when memory compression program isn't found
    
    If the compression program for external snapshot memory image isn't
    found we exitted the function without terminating the domain job. This
    caused the domain to be unusable.
    
    The problem was introduced in commit 7df5093f.
    
    Resolves: https://bugzilla.redhat.com/show_bug.cgi?id=1097503

Hi Peter,
It seems that the patch in #1 is not pushed 
into the latest libvirt.  However, the bug 
is fixed in the latest libvirt. So I wonder
which patch fixes it. Could you please paste
them here?

qemuDomainSnapshotCreateActiveExternal(virConnectPtr conn,
if (cfg->snapshotImageFormat) {
            compressed = qemuSaveCompressionTypeFromString(cfg->snapshotImageFormat);
            if (compressed < 0) {
                virReportError(VIR_ERR_OPERATION_FAILED, "%s",
                               _("Invalid snapshot image format specified "
                                 "in configuration file"));
                goto cleanup;
            }

            if (!qemuCompressProgramAvailable(compressed)) {
                virReportError(VIR_ERR_OPERATION_FAILED, "%s",
                               _("Compression program for image format "
                                 "in configuration file isn't available"));
                goto cleanup;
            }
        }

Thanks 
Yang

Reproduced and verified steps are as following:

I can reproduce it with libvirt-1.1.1-29.el7.x86_64 and qemu-kvm-rhev-1.5.3-60.el7ev.x86_64.

Verified with libvirt-1.2.8-5.el7.x86_64 and qemu-kvm-rhev-2.1.2-4.el7.x86_64

Steps:
1. start a healthy guest
# virsh list --all
 Id    Name                           State
----------------------------------------------------
 2     qe-con1                        running

2. # grep "snapshot_image_format =" /etc/libvirt/qemu.conf
snapshot_image_format = "what"
# service libvirtd restart

3. create external memory only snapshot
# virsh snapshot-create-as qe-con1 s1 --memspec file=/tmp/qe-con1.mem
error: operation failed: Invalid snapshot image format specified in configuration file

4. check vm status

# virsh list --all
 Id    Name                           State
----------------------------------------------------
 2     qe-con1                        running

All the steps got the expected results.

(In reply to yangyang from comment #3)
> Hi Peter,
> It seems that the patch in #1 is not pushed 
> into the latest libvirt.  However, the bug 
> is fixed in the latest libvirt. So I wonder
> which patch fixes it. Could you please paste
> them here?
> 

The patch is there for a long time now:
 $ git desc --match v* 71802685ba49a80326d69fd446d2f25844526ba8
v1.2.4-59-g7180268

Thanks Peter.

Moved it to verified since steps in #3 got expected results

Since the problem described in this bug report should be
resolved in a recent advisory, it has been closed with a
resolution of ERRATA.

For information on the advisory, and where to find the updated
files, follow the link below.

If the solution does not work for you, open a new bug report.

https://rhn.redhat.com/errata/RHSA-2015-0323.html