Original Post: http://appleclinic.wordpress.com/2008/10/30/time-machine-on-nas/

Getting Time Machine to work on an Unsupported NAS

Some of us may own Network Attached Storage (NAS) devices, and/or may feel that an Apple Time Capsule is too expensive, and hence would rather buy a seperate router, NAS and Hard Disk Drives. This guide will help you to enable Time Machine on any NAS, allowing you to have the functionality of a Time Capsule, with hardware of your own choosing.

1. Prepare your NAS. Make sure it is fully functioning. This mini-guide assumes you already have one that is functioning well, and you know how to manage it.
2. It would be preferable to assign your NAS a Static IP address. Check your router and NAS documentation for guidelines on how to do this.
3. In OS X, open up Terminal and enter the following command to enable Time Machine to work with your NAS: defaults write com.apple.systempreferences TMShowUnsupportedNetworkVolumes 1
4. Log out of OS X and Log in again. You do not need to reboot your machine.
5. Time Machine saves backups in a very specific format, and we will use a sparsebundle to get this done. The sparsebundle name consists of your Computername_MACaddress.sparsebundle.
6. Find the MAC address of the machine’s internal Ethernet port with ifconfig en0 | grep ether | sed s/://g | sed s/ether// in Terminal. This will return one line of output, which is the MAC address for the Ethernet port, which will be a string of 14 hexadecimal characters (letters and numbers, for example,001ec4b8f9b3). 

Even if the network backups will be done using a different port (e.g. AirPort: usually en1), the system will use the MAC address of en0 as part of the system identifier.
7. Make a new “sparsebundle” on a local disk (NOT the Time Machine disk!). This sparsebundle is a virtual filesystem image which we’ll copy to the NAS, and Time Machine will then access it remotely (that way Time Machine’s not limited by the filesystem features of whatever NAS it’s using: all the funky stuff happens within the sparsebundle). By default sparsebundles can keep growing until they fill up the NAS, but in this scenario we keep other things on the NAS as well as backups, and we’re going to limit the sparsebundle size to 70 GB.Enter the following command in Terminal:
   sudo hdiutil create -size 70g -type SPARSEBUNDLE -nospotlight -volname "Backup of My Mac" -fs "Case-sensitive Journaled HFS+" -verbose ./Computername_MACaddress. This will create a 70GB sparse-bundle as a case-sensitive, journaled HFS+ without spotlight indexing. Substitute variables in red for values you need. Computername_MACaddress may be in the form of “DansComputer_001ec4b8f9b3
8. Log into your NAS and create a user Account (Eg, “TimeMachine”). You may want to assign disk space quotas for this user if you need to.
9. On your NAS, create a shared folder (Eg, “TimeMachine”). Add the user account you created in step 8 above, and grant that user Read+Write privileges.
10. In Finder, select Go>Connect to Server. For the server address, type smb://TimeMachine@ip-address-of-nas/TimeMachine. Click Connect and when prompted, enter the password and save in your keychain.
11. Now copy your locally created sparsebundle into the TimeMachine share. If you did not change the folder when you entered command prompt, you may find this sparsebundle in your Home folder (/Users/yourusername).
12. On your NAS, check to see that the file is copied under the correct user account.
13. Open up Time Machine, select your “TimeMachine”-folder as the desired destination, and the backup will start.
14. Tip: For the first backup it is recommended to connect via LAN, as you will be able to get a throughput of 10-30MB/sec.
15. If your NAS allows for it, you may now hide your TimeMachine folder so they do not show up over the network share list.

Hope this helps.