For the life of me, I don't understand Windows Backup in Vista.
It will fill up the destination device with backups until the device is full. And then it simply gives you an error that the backup failed. There is no option to delete previous backups (incremental or full). Instead, you have to manually delete previous backups to make room.
I did that. Windows Backup still failed to make a backup.
So I deleted the entire backup directory. Only then did Windows Backup work.
Since doing that, I've noticed that each weekly backup is similar in size. Previously, backups had different sizes. Now, I know I'm not altering all my music and image files every week. It appears that Windows Backup is performing a full backup each week. This means that the destination device will fill up quickly.
I'll have to delete the directory again, and create a new backup. I'll give Windows Backup one more chance before searching for a third-party solution that works.
UPDATE (2008-08-16): After a tip at Lifehacker, I am using Cobian Backup 9. It performs full, incremental and differential backups. It is completely customizable. I have experienced no problems. It can be set to perform a full backup after so many incremental or differential backups and it will automatically delete old backups. It may be exactly what you are looking for. Give it a try. It's free.