Personally I think Time Machine is the most retarded thing ever. It'll just keep creating back ups until your external drive is full. There's no preference setting to have it only back up to X amount of data, or control how soon it deletes the back ups. It'd be nice if you could tell it to delete everything older than X amount of days, but you can't. Unless you're constantly working with data that you could potentially lose, it's pointless. The likelyhood that you're going to mess up your mac so bad that you're going to have to do a complete reformat of the drive is so slim that it's not worth giving up that much space on your external to turn time machine on. It's a scam to get you to buy Apple Time Capsule.
You so completely don't get what time machine is there for. It's a backup solution. Buy an external hard drive, turn on Time Machine, and forget it. This whole thread is amazing, lots of people trying to mess around with their backup system. That's about the one thing in the world that you don't want to mess around with, especially when you have just enough knowledge to be dangerous.