External Hard Drive versus Tape Backup

We have a tape backup system which uses Travan 20/40GB tapes - that is, they should store up to 40GB depending on compression. Realistically, the capacity is usually much closer to 20GB.  Lately the tape has been filling before the backup job has completed. I have cut all that I can out of the file backup list. So, it's time to upgrade to a higher capacity system.

I see that Dell has 1TB USB external hard drives for $300 (Iomega). Meanwhile, a tape backup system for 100GB uncompressed runs around $1500.  I'm wondering about the following solution: buy 2 or 3 of these hard drives, then schedule the Windows Backup Utility to back up the server's hard drive to the external drive.  I have never used the backup utility provided by windows - is it reliable and generally problem free? I would like to hear from Experts as to viability of this solution - are there any difficulties or pitfalls to be aware off? Are there any important reasons as to why I should go for the more-expensive tape drive option?

Server is running Windows 2003.

thanks,
firebird-sc