Not sure which of the settings I'd fiddled with
did the trick, but the error message is GONE
and I have 23.6GBs of FREE Storage Space in iCloud!

I'd turned off "Back-Ups" in "Settings"

That did it.

I started typing this below but had to beat the sun out in the yard, but by then you'd figured it out.

If you're backing the phone up to your computer you don't need the iCloud backup anyway. If you have your computer backed up and you have all of your Photos in iPhoto you don't need to have Camera Roll set to backup. If your Music is up there it's taking up space if you already back your computer up.

Come to think of it, it's probably Mail too if you use a .mac etc address. Looking at the shot below you see that there is really nothing up there other than Mail to take up space.

Turn off iCloud backup.

You might as well drop that extra $40 a year you've been forking out, add $20 to it, and subscribe to Carbonite or CrashPlan for $60 a year as an off site backup of your computer in case your abode goes under total thermal destruction or something.

Apple should refund you for the balance of your year.

CrashPlan backs up any kind of computer, but I was in touch with one of their techs this week for a problem on a Windows server. I made a joke about Windows and he told me that they are all Mac based. shocked