Best option would be to upgrade to SQL 2008 R2 and take advantage of the backup compression. Failing that, grab hold of a third-party compression tool. There are quite a few of them around now, and they're all pretty reliable.

Get your client to shell out for more disk space, allocate space from SAN/NAS, these are only backups, so performance isn't that critical.

Final option would be to get a couple of USB drives (probably <$200). Backup the database to local disks then move it to the USB drive. Maintain 4-5 days of backups on the USB drive and swap the drives around every couple of days.