Time Machine drive is smaller than my Macbook Pro's drive.

Your TM backup drive should be at least twice the capacity of the drive you backup. Otherwise you will run out of space on the backup drive quickly.

Your TimeMachine backup should initially create a full back up and then do incremental backups. So, depending on how large your initial back up was (which would include all installed apps, music files, video files, etc... unless you specifically excluded them) any extra space will be used for backing up only newer versions of files that have changed. When an "older" back up is deleted... it is just deleting the oldest version of files for which it has multiple versions stored. If the amount of data on your internal drive goes over the amount of space available, TimeMachine will not be able to keep all of your data backed up and you will receive the drive full message (you just can't back up more data than you have space for... although... off the top of my head, I'm not sure if TimeMachine compresses the backups... but even still, you're working with very little elbow room). Also... unless your external laptop drive is an SSD... 40GB would indicate that it's fairly old. You may want to consider looking at just getting a newer external hard drive. High capacity drives in the 500GB (2.5" form factor) can be found for U.S. $50 and less now.

Drives are cheap. I have a 500gb drive for backup with a 7200rpm speed. It should give plenty of backup for some time and is fast with the firewire 800.

around 320GB sounds right for my 250GB Macbook.

Not really I'd recommend a 500 GB, the difference in price between a 320 and 500 GB drive should be minor. Take the step and get a 500 GB or even better a 750 GB.

Regards,

Roger

With Time Machine, the backup copy never gets smaller. It always gets bigger, even if you delete lots of stuff. You know you can never have more than the drive capacity of the internal drive on board (250 in your case). But TM copies every file you have ever had on your machine out to the backup drive, thus it is always expanding. It would not be unusual to have the backup file expand out to two or three times the size of what you carry around. It depends on the size of what you typically move around.

I use a a 2TB time capsule at home where I back up four machines. Since I travel, I just bought a miniature USB powered 1 TB drive, for the road. You do not really need performance from the backup drive, so cheap drives are fine. But in the case of backup drives... Size Matters.