As stated in the error report, Time Machine needs space on the backup drive to manipulate the data and to do whatever else is necessary to ensure a complete, successful backup.
Check to see if you are backing up something other than just the one partition.
P
<span id="INSERTION_MARKER">I have an external 360 Gb
SSD to back up my Mac Mini internal LIon 160 Gb hard drive as well as an external 160Gb
hard drive.
<span>
<div><span>The 360 Gig SSD is
partitioned in half.
</div><span>
<div><span> I also have a different
external 160 hard drive I use for Snow Leopard so I can still
work with Quicken, Appleworks and Entourage.
</div><span>
<div><span>I successfully use
Timeline to back up one partition from my Snow Leopard external 160 Gig hard drive to one partition on to the SSD.</div><span>
<div><span> When I try to back up the
other partition, I get this error message:
========================================================
Time Machine could not
complete the backup. </div><span>
<div><span>This backup is too large
for the backup disk. The backup rquires 238.40 Gb but only 157.77 are available.
</div><span>
<div><span>Time machine needs work
space on the backup disk, in addtion to the space required to store backups.
Open Time
Machine preferences to
select a larger backup disk or make the backup smaller by excluying files.
========================================================
How is it possible for a
requirement of 238.40 Gb on the destination disk when the source disk is
160 Gb?
</div>

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