How does Time Machine handle an external drive shared between two Macs? I have a new MacBook Air (13" with 128Gb SSD) and my wife has an old MacBook (120Gb HDD) and we're planning to both use the same 1Tb external HDD to store our iTunes and iPhoto libraries and the same 2Tb external HDD for Time Machine backups (obviously only one of us can use the external HDDs at the same time).

If each of us sets the the 1Tb (music and photos) drive to be backed up by Time Machine will Time Machine back it up independently for each user, even though the data is the same? If so (which I suspect is the case) then I guess it would make sense for only one of us to configure the 1Tb ext HDD to be backed up by Time Machine, with the risk that any changes the other person makes won't be backed up until the one doing the backups connects?
Time Machine allows you to backup multiple macs to one drive.  You just plug it in, set it up, and you're good.  If you look at the file system, you can see separate backups for both computers.  At our home we currently do this with a Mac Mini and a MacBook.  The Mac Mini is always plugged in, and the MacBook gets updated every couple weeks.  We use a 1.5 TB drive from Western Digital.  Given your description, I think this solution with your 2TB drive should work well for you.

The data backed up by both macs will not be the same, as no matter how hard you try, both computers will wind up having subtile differences, so the data won't be "exactly" the same.  Backing up only one system doesn't seem ideal to me, but you can restore a MacBook from a Mac Mini backup.  It works fine.

Also, you realize that the drive must be connected for you to access the photos and music that you have stored there.  You'll have to factor that into your storage solution.