2TB's of Data On a 160GB Hard Drive? hmmmmmmm.....

Hi,

I am trying to start backing up my Macbook with time machine. I have got a 160GB hard drive that is far from full. When I go to backup, Time Machine says I need about 2,000GB worth of hard drive size to backup to! I don't have a 2TB hard drive to back up to, let alone a 2TB inside my Mac! I see that a good remedy would be to format and start over, but I'd have to backup first. And I obviously can't do that. If were to pick and choose files to save, I would lose Apps that I can't afford losing (Adobe Design Premium CS3). I am in quite a pickle. If anyone knows how to make my 160GB HD read 160GB again, I would be very grateful.