I'm having the same issue implementing Time Machine with a third-party NAS (DNS-323). I haven't solved the problem myself, but I believe I'm close to solving it following the instructions published here:
http://www.flokru.org/2008/02/29/time-machine-backups-on-network-shares-in-leopa rd/
and then here:
http://www.flokru.org/2008/03/15/time-machine-backups-on-network-shares-2-possib le-problems/
Read the instructions in those links, then read what I'm about to write here - the only problem I have left with implementing Time Machine with my DNS-323 is that when I use Disk Utility in OS X to create a sparsebundle image of 250GB, my MacBook tells me I can't create the image because I only have 147GB of space on my MacBook's HD. From what I understand, this should not be an issue because although I am trying to create a sparsebundle image that is 250GB, my MacBook should be recognizing this image as being essentially 0GB big, because there are not yet any files backed up to this sparsebundle image. Apparently, it is only after the sparsebundle image is created, moved to the DNS-323, then filled by using Time Machine to back-up my MacBook's HD, that this file should actually begin occupying space. So, for example, the way it SHOULD work is as follows: I create a sparsebundle image using Disk Utility in OS X, and define it as 250GB (though the "recognized" size of the image at this point should still be pretty much 0GB). Then I move the sparsebundle image to my DNS-323. Then, to back up my MacBook's HD, which currently has 103GB of stuff on it, I run Time Machine and make it back-up to the DNS-323. Once the back-up is completed, the sparsebundle image should be recognized as being a file that is approximately 103GB in size (now that my MacBook's entire HD has been backed-up to the sparsebundle image).
However, I repeat, this is not working as it should for me. I can get this to work for me if I create a sparsebundle image using Disk Utility and define the size of the image as being equal to or less than the remaining space on my Mac's HD, but that's not good enough for me, and based on what I know about sparsebundle images (and what I've described above) this should not be a limitation. I want to create an image that is defined as being at least 250GB large, the same size as my HD on my Mac.
Any help would be greatly appreciated.
Thanks,
P.