I got my first “out of space” error from iCloud today. It took some googling around to get more light to the inner life of how iCloud backups work. It looks like the service is configured by default to backup all your photos and videos, in addition to all applications, calendar, contacts etc. It does not waste bandwidth and backup space to produce copies of your music files, or OS files, though – supposedly you have access to those bytes otherwise. But in my case it was recorded videos and photos that had bloated the size of backup so that it run over the free 5 gigabyte space limit. If you have also iOS5 Photo Stream turned on like me, you do not probably want to produce yet another copy to the iPhone backup in iCloud. Some more talk, and instruction: http://themacmob.com/icloud-backup-explained/ .