You can still place a game on there.
Its a bit intricate how it details what kind of file constitutes the 4gb file size limit, as its for an individual file..as i have alot BR back-ups on my Fat32 drive that streams to other computers and mediacentres.
for more info:
http://en.wikipedia.org/wiki/Fat32
As far as harddrives go, you can certainly even just get a matching size drive, Time Machine is not going to copy free space, lets say you are only using 10GB of your macosx drive, its just gonna copy that 10GB, then when the hourly backups occur and say you delete 4GB of space, it will copy that 6GB over, but you add 20GB of data to it, it will then copy that 20GB plus the remainder of what you have on your drive aswell, so 26gb (which consists of everything you had before)
if that made much sense, its wise to have twice of your drive, just depends on your needs. and atleast one Bootable clone of your main OS drive would be beneficial.