I've been doing a bit of experimentation -- sorry to say, it looks like you're out of luck. 😟
I can explain what is happening, but am not entirely sure why.
It's the result of the rather unusual structure of Time Machine backups. The first backup copies everything. On all subsequent backups, only the items that changed are copied. But "hard links" are made to the items that did not change, so each backup appears to be a full one. See Hard Links in How Time Machine works its Magic for a better explanation.
Ordinarily when you copy the Backups.backupdb folder, those "hard links" are copied correctly -- there's still only one copy of the unchanged files, but multiple hard links to them.
Once the Backups.backupdb folder is moved from the top level of the drive (apparently), the copy doesn't work properly -- instead of copying the hard links, the actual files are copied. So if there are 3 backups, all containing hard links to the same unchanged version of a file, the file will be copied 3 times instead of once. Since few files change from one backup to the next, there will be lots of these, and the copied folder will be many times the size of the original.
That always happened on Leopard, but the Finder was rewritten effective with Snow Leopard so it wouldn't do that. Apparently it only works properly now if the Backups.backupdb folder is at the top level of the drive, not inside another folder.
So, your best bet is to let Time Machine start fresh on the reformatted drive. Keep the old backups as long as you think you may need them. You won't be able to restore from them via Time Machine, but you will be able to copy selected items from them via the Finder (but you may have permissions problems with them). If space is a problem, you can delete some of the individual date-stamped backup folders.