Yes. I've been doing this since Snow Leopard. All my MacBook Pros in the house do their Time Machine backups to an external USB drive that's hanging off an iMac running the standard OS X install (i.e. not Server). At the time of writing the iMac has been upgraded to Lion as has one of the MacBook Pros.
First, configure your target machine (the one with the USB drive attached):
- Format the drive as OS X Extended Journaled. Give it a useful name. I use 'Remote Backups'.
- Go to System Preferences -> Sharing
- Make sure
File Sharing is turned on and has a check mark next to it
- Under the 'Shared Folders' list click the + button and add your newly formatted USB drive to the list of shared folders
- Select the drive in the list and under 'Users' make sure everyone shown has read/write access to the drive.
Now you need to configure your source machine (the one you want to keep it's Time Machine volume on this drive):
- Open Finder on the machine. Find your target machine and click on it. Mount the drive on this machine.
- If you're asked for a user name and password use the user name and password on your target machine that you used to login and setup the share. Make sure you save this user name and password to your keychain
- Go to System Preferences -> Time Machine
- Click
Select Disk...
- The list should include the mounted drive, select that. Pick your encryption options and hit the
Use Backup Disk button
You're now all set up to use this remote drive as your Time Machine backup location. When Time Machine runs you'll see this drive appear as a mount on your system, and when it's done the mount will go away.
If you browse this drive from the target machine you'll see sparsebundle files, one for each machine that's doing a Time Machine backup to this drive, on the disk. These are the actual "disks" that Time Machine is using on each machine to keep the incrementals. If you click on one, it should mount and you should be able to browse it like normal.
If you have a complete disaster and need to do a fresh OS X install and recover from Time Machine you can point the recovery process at the remote drive and it will ask you to pick a sparsebundle from the drive to recover from. Or, and this is what I recommend, you can unattach the drive from your target and attach it via USB to your machine and do the restore over USB which is much faster.
I can confirm that complete restores from Time Machine backups kept in this manner work well. I've had to do two of them in the past few years on machines that keep their backups this way and both went smashingly well. Browsing Time Machine history in the Time Machine viewer can be a bit laggy, but it does work.
First, I must say if you are running Lion you shouldn't worry about this, as all Lion machines have a "Restore Partition". That is they save all the system files required to restore the system on a special "section" of the disk unaccessible under normal conditions. If you ever do want to access this Restore Disk, simply hold down the option key while your Mac is booting up, and you should see be able to select it.
Time Machine, as far as I can tell, DOES backup system files. It full copy of your drive. Nonetheless, time machine backups are not bootable. You can save space by excluding system files, or any other big files you might not want/need to back up. Here are some articles that might help you with that: Time Machine tips and troubleshooting, Guide To Excluding Data from Time Machine Backups.
If you don't, time machine will leave them, no matter how old the data gets, and it would display an error/warning if you run out of space rather than deleting them. Time machine makes sure to always have at least a single full copy of your system.
Regarding space, you can backup a larger drive with a smaller one, as long as your Time Machine Drive can hold all the space you are using on your larger drive. So if you have 800GB in your system, but have only used 200GB, you could back it up with a 500GB drive, though it is not recommended, because if one day you do fill the drive Time Machine wouldn't be able to have a single full backup. Nonetheless, if you keep your actual disk usage below your Time Machine Disk capacity, you should be fine, with at least one full backup.
My final recommendation is you check those articles and save space for your backup, excluding the system files (Time Machine backups aren't bootable anyways. You'd need an installation disk or a Recovery Drive.) and any other large, unimportant files. Finally, keep an eye on your backup, and if you find out you do need more space I really recommend buying a larger hard drive! Time Machine can come up pretty handy in times of despair!
Best Answer
If this is a Time Machine disk, disconnecting it and then reconnecting it in the future will simply make Time Machine update it when it is plugged in as normal, meaning it will back up whatever has changed. It will not erase the drive and start from scratch. It will simply resume where it left off.
Or do you mean that this external disk was one of the drives that Time Machine was backing up onto another, separate drive? If so, it seems that if you use that drive on another computer and then try to back it up with Time Machine again, it may cause some problems (or may not. Just depends.) Also, in a case where TM hasn't backed up a drive in a while, it may lose much of its cache for that disk and appear to be backing everything up again when you plug it back in. However, in this case it seems that it's not actually backing it all up, it's only really keeping what has changed.