Incorrect size of home directory, really strange

So here's my issue:

I just bought an external hard drive and have it set up into two partitions. I gave one partition to Time Machine and the other is set to be just an external hard drive.

Now, everything was working fine until I went to start using time machine. It stated that my home directory was crazy huge to what it should be. Time Machine refused to back up that directory because it was not possible. The only thing I can think of is that somehow my home directory thinks that the space on the external hard drive that is not given to time machine is actually a part of the home directory itself.

Here are a couple pictures of the issue. Mind you, I have a 120gb internal hard drive, that's it.

http://i78.photobucket.com/albums/j94/sniffglue451/Picture1.png
http://i78.photobucket.com/albums/j94/sniffglue451/Picture2-1.png

The internal drive is partitioned into a 31.58gb Bootcamp partition and a 79.88gb OSX partition. The external drive is partitioned into a 120gb Time Machine partition and a 177.65gb External HD partition.

Any thoughts on how I can make my computer understand it is not that huge?

 

Yeah, the space available (like 44gb) is what is on my internal drive. I was figuring it was adding in the external to that to create the bizarre size. Would doing what Shep suggested with FileVault get that back to a more normal figure that I could actually back up?