Vista Tutorial - File Backup Space

I am using the Vista File Backup program that comes with Vista Ultimate. I am backing up to a 500GB USB disk. The initial backup takes up approximately 125GB. I have the automatic backup set to 1AM each day. I use the computer
in business with some Word and Excel documents being added or changed daily.

The backup functions properly but fills the 500GB USB disk up in approximately 10 days, at which point I see an error message that the backup
failed due to lack of space. I have attempted deleting earlier backups and selecting "try again", but then the error message reads "cannot find backup "mm/dd/yyyy" (which is the latest partial or failed backup). The only way I have discovered to make the backup program work is to delete the existing backup and start a new backup that will again last for approximately 10 more days.

Does the backup program make incremental backups after the initial file backup or does it do a complete file backup periodically? Should I be able to delete or groom older incremental backups to make space for newer incremental backups without deleting the complete backup and starting over again with a complete new File Backup?

Regards,
Gary