Time machine makes regular copies of the files it backs up - it doesn't compress them. And if you have a large file and make one tiny change, the whole file is re-backed up. The advantage is, you can look through the archives yourself if you want to and just drag a backup onto your regular disk to get it back. The disadvantage is the space it takes.
When the backup disk gets full, it will warn you when the disk doesn't have much room left. You can just tell it to start backing up to another disk. It won't lose track. Otherwise, you can just let it start deleting the oldest backups automatically, in this way it keeps a rolling backup of however much it can fit on the backup disk. Remember, it keeps hourly backups of the last 24 hours, daily backups of the last week, and as many weekly backups as it can fit on the disk. If you don't give it a new empty disk when the old one is full, it will just keep however many weeks it can, issuing optional warnings as it deletes the oldest stuff, so you know what's happening.
In the future, I believe Apple will address this issue of it making a backup of full, uncompressed files, even when the files have only changed a teensy bit. Remember the fuss over this new ZFS file system? Once fully implemented, it can do proper, partial backups of files with no extra overhead. Once that ability is in Leopard, obviously we will see it going straight into Time Machine. If a huge file like a database gets a teenly little change, only that teeny part will need to be backed up, rather than making a new full backup copy of the file. ZFS also lets you add new hard disks to the backup pool on the fly. ZFS and Time Machine go hand in glove. I'm sure we will see Time Machine making huge gains once ZFS gets into OSX. My guess is it will happen way before OSX 10.6.