Helpful Hint: Try not to sound like a smarmy know it all when giving advice. Some of us can't afford an external hard-drive when the laptop sets you back quite a bit already.
Here's an option for you. if you have an old computer that you are not using and had bit the dust (but the hard drive is still good) - get your self a USB external enclosure for the drive. Enclosures have dropped to at low as $25 depending on where you look. they now come in sizes to support the 3 1/2 inch desk top drive and 2.5 laptop drives. just make sure the enclosure is the right connection (IDEE, SATA, eSATA - or whatever the drive is using).
I used to have 3 or 4 of them laying around, before I got out of the PC repair ministry. They worked good, I had a friend who had a house fire, the laptop was toast and could not even recognize it. I grabbed his laptop, broke the cover and keyboard off of it (trust me it was pretty melted). Saw that the harddrive looked good (just had black soot on it). Plugged it up to an enclosure and hooked it up to my expendable (kept one with just an OS incase of viruses) laptop's USB. Drive was good, and got all his data back for him. Just the boot sector seemed to take a hit.
I done the enclosure thing many times to reuse hard drives, or too extract data from a drive where the OS or boot sector was trashed.
I do not think drive size matters too much with time machine (as long as it can hold one full backup). time machine will delete the oldest backup (you can set it to warn you), to make room for the newest one. I have a 500 gb harddrive for my laptop. I was using a 250 internal hard drive from a 4-year old HP machine for my wife's mini until a popup -no warning thunderstorm gave the drive a spike.