What size backup drive for time machine on 500gb MBP?

I'm sure this is a really novice question, but I couldn't find the answer on the forum.
I've just got a MBP with a 500gb HDD. I won't be buying a Time Capsule, but I'd like to set up Time Machine to backup to an external USB HDD. What is the optimum size for this?
I see that time machine keeps deleted files, I'm not sure if it uses compression, and I'm not sure what happens when I run out of space... does it reduce the number of duplicates that it keeps, or will I run into a problem?
Really, what I'm trying to find out is: I have an old 500gb HDD that isn't being used for much. Is this sufficient to back up a 500gb HDD (assuming that, at some point, I'm going to be hovering around maximum capacity on the MBP)?
Thankyou!

Hi and welcome to Discussions,
our local Time Machine 'Guru' Pondini has made a very thorough FAQ on it to be found here http://discussions.apple.com/thread.jspa?threadID=1964018
Quoted from it (section 1):
"A general "rule of thumb" is, TM needs 2 to 3 times as much space as the data it's backing-up (not necessarily the entire size of your internal HD).
But this varies greatly, depending on how you use your Mac. If you frequently add/update lots of large files, then even 3 times may not be enough. If you're a light user, 1.5 times might do. Unfortunately, it's rather hard to predict, so if in doubt, get a bigger one!
Also, there are some OSX features and 3rd-party applications that take up large amounts of backup space, for various reasons. See question #9 for details.
This is a trade-off between space and how long TM can keep its backups, since TM will, by design, eventually use all the space available. But it won't just quit backing-up when it runs out: it starts deleting the oldest backups so it can keep making new ones. Thus, the more space it has, the longer it can keep your backups."
Regards
Stefan

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