I agree, Modelmaker.
By today's standards, a 40gb drive seems small. But it's light years larger/faster/more reliable/cheaper(as rewritable media) than a dvd. Of course, they don't make good coasters, so there's that.
Since MC isn't quite there for systematic backup, I created custom fields for each backup, which I populate with the media ID (DVD number or drive name). Then I select the appropriate chunk of tracks and either burn a DVD or do a "library tools/copy disk file". The custom fields allow me to see the overlap of my global and incremental backups. While everthing is backed up at least once, I make sure my 4 and 5 star tracks are backed up multiple times.
It's a shame that this process doesn't give you the option of creating a link back to the original track, so that MC would always know where to look for the correct backup file. But Alex B's suggestion of writing library info back to the file tags should help MC find most of the files.
Whiskers, if you're determined to use DVDs only, there's an option within the MC burn dialogue to preserve original directory structure. I recommend you try that, although I just learned about it myself. The one thing you don't want to do is rebuild your library when you go to restore your data. A hard drive backup, basically an image of your entire library, avoids this.