I think you might be confusing a few terms.
You mentioned the configuration setting "Number of Backup sets per ... file"
(On the Devices tab, under 'Backup-to-Disk' folders.)
This is NOT the number of backup-to-disk FILES that will be in that 'folder'.
Example: If i am backing up across the network and have selected \\SrvFile\J: and \\SrvFile\K: to back up, this is two (2) backup SETS. But, because they are specified in the same job, they are written to ONE backup-to-disk file (provided the setting for files in that folder is large enough).
Then, the other solutions started pointing you to the Overwrite Protection Period. But, you said The external drive we are backing up to and all of the folders on that drive are all included in Media Set 1
This is where your problem is. You need to create a NEW Media Set, on the 'Media' tab, named, for example, "On-disk files".
Give it the Overwrite Protection Period of 32 hours or so - remember to allow for the time your backup takes.
Now, on the 'Job Setup' tab, on the properties for this particular job, configure the "Destination | Device and Media | Media Set" to point to the new media set you just created.
Works like a charm. I have a backup to disk that runs every day, keeps 7 files (Mon - Sun), then overwrites itself. - never have to touch it.
HINT: keep you tape backups and backup-to-disk in separate media sets so you have some control over the overwrite protection policy.
Cheers