iTunes is in total control, and you only have one backup. 3.5 GB is excessive. You might want to restore as new and set up the 4 as a new iPhone rather than restoring it from your 3GS.
thanks alli I was just hoping that I could get it to store 2 back ups but I guess thats just how apple is. I didnt want to restore as new for my saves and it will force me to go to 4.0.1 and i was holding out for a jailbreak but i may just have to.