Thanks for the reply. I did try reformatting with XFS format and redid the backup job. Good news - it did finally complete!! We'll see if it is really stable again tonight (takes 12 hours to backup 260G - seems too slow!).
To answer your other question re. the backup setup, yes even when the backup did fail, I could access the USB drive via the NAS. The files that it did backup before it failed were fine... it simply appears that the Linkstation loses connectivity with the USB drive.
So stay tuned.. I'll report if tomorrow's backup is successful.
Don