So she couldn't get into my files from her computer? I can lock my folder and she with hers? or will TC not allow her computer into my files?
If you're concerned about privacy of your files and data, you may want to look into upgrading to OSX Lion if you haven't already done so, and then enable full drive encryption. This will encode all your stuff with 256-bit AES cipher, which is...well, fairly tough to crack, shall we say. It takes millions or even billions of CPU hours to brute-force open, so basically, any non-government sponsored attempt to look at your files will be completely impossible. Unless they guess your password, of course...
Also, if you own a 2011 (or soon, 2012 and onwards) model year Mac, the performance impact for very heavy disk activity is almost imperceptible due to special CPU instructions to handle the encoding and decoding of information. If not, there'll be a hit to performance, especially when writing data, but unless you spend a lot of time writing LOTS of data it shouldn't be a big issue.
As a bonus, if you enable drive encryption your time machine backups will be encrypted automatically as well.
Is there any differences between the TC from Oct 09 to the ones out now besides the room?
You mean storage capacity?
Well, yes and no. Visually, I think they look EXACTLY the same. Internally there are some differences between generations, the two most recent gens have a faster main CPU with more RAM available to it than the previous and feature triple-stream, dual-band .11n WiFi radios (most recent revision has better radios for greater throughput and range), and the three most recent revisions have a built-in radial fan to cool the integrated power supply somewhat.
These later time machines also power down the harddrive when it's not in use, which saves power and limits heat output also.