OK, now I'm using a sparsebundle file with 1MB bands instead of the default 8MB. It's soon after the change and I'm still monitoring, but the conversion appears to have the desired result - my backup is now in the 100MB range instead of 500MB range. Maybe 500KB bands would reduce the backup size further, I don't know. I used this command to convert the sparsebundle file:

hdiutil convert ~/Documents/Office_2008_backup.sparsebundle -format UDSB -tgtimagekey sparse-band-size=2048 -o ~/Documents/Office_2008_IdentitiesNEW.sparsebundle

where Office_2008_IdentitiesNEW.sparsebundle is the converted file with the 1MB bands. After the conversion, I created a new alias pointing to the converted file.

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According to the man page for hdiutil, 1MB bands are the smallest allowed.

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