There are two strategies and you can do one or the other or both like I do.
True Backup
Use Time Machine for backup and plan on restoring all your data if the primary disk fails. The advantage of this method is that you get true backup -- allowing you to go back in time to retrive a file that you may have accidentally deleted weeks earlier. If the priamry disk fails you can reinstall the OS and migrate data from the Time Machine disk. This will take a few hours, but you get your data back.
For this method you want the cheapest disk that is around 50% larger than your primary disk. This can be an external Firewire or USB 2 drive and it doesn't matter if it is 2.5" or 3.5".
Disaster Recovery
The other strategy is to use something like Carbon Coy Cloner to mirror your data to a second disk. The idea is that the second disk would replace the primary disk in case of a failure. You swap out the failed disk with the other disk. This means that you can recover really quickly without needing to install any software. The problem with this approach is that it is NOT true backup -- you cannot retrive a file that you may have accidentally deleted weeks earlier. For this method you want a disk that is 2.5" and the same capacity as your primary disk. You need to keep the "backup drive" in some kind of Firewire or USB 2 external 2.5" enclosure that you will also need to purchase.
I usually buy all my drives and enclosure from Other World Computing, since they have a great selection of reliable stuff at a good price.