To make a long story short, I am wondering if it is unwise to use large thin .vmdk's for a nas VM? I am planning on backing up to external 2TB drives (very small business), keeping one offsite at all times.
I could use a poweredge 840, but the fileserver is so lightly used, it seems like a waste. The company has an ESXi server that could store the fileserver disks.
Regarding the backups, would I be better off using cron+rsync and passthrough to USB using the native disk, or should I make a datastore and backup the .vmdk files? Also, there isn't any budget for software.
You can create a VMDK as large as you want -- I don't believe VMWare imposes a limit. It's as safe as any other VMDK image, with perhaps a slight increase in risk as it's covering more physical area on the disk (greater chance for a sector to go bad. That's why your VMWare box has a RAID controller, right?).
The two caveats I would point out are:
If you use a sparse (growing) image instead of a pre-allocated one your VMDK may not be contiguous. This can create performance problems on two ends: Writing data will take longer (because the VMWare server needs to allocate physical disk space), and retrieving data will take longer (because the head has to seek over the "gaps" in the disk).
If your file server is heavily used you may create disk contention: People trying to read/write files will be competing with all the other VMs trying to do whatever they do. Depending on disk speed and overall VM activity this may make a noticeable dent in performance for the file server or other virtual machines.
Sometimes buying the El-Cheapo standalone file server (or a NAS device, or putting a copy of FreeNAS on an old box and giving it big disks) is a better solution - Consider your workload before virtualizing.
In my opinion both the alternatives you present for backup are a bad idea. I highly doubt hot-plugging USB hard drives was in the design brief when VMware designed the datastore system. Yes you can dismount datastores, but I'm not sure ESXi supports using USB devices as datastores anyway (I think you'll find the embedded OS can't mount volumes from USB devices).
USB passthrough for storage devices is available in ESXi, but you have to shut down the VM to detach it cleanly. Again, using this mechanism for routine backup is a bad idea as it's highly inconvenient to do cleanly. I've also experienced data corruption while attaching a USB HDD to a CentOS 5.5 VM on ESXi 4.1 for a migration... I wouldn't trust it for backup.
A cheap NAS gets my vote.
Regarding using large VMDKs I'm not aware of any specific risks of that size, but it doesn't seem like a great idea to use a thin 1TB vmdk for a NAS, especially since there will presumably be a lot of writes.