How far back into the mists of html, browser and standards evolution do you think I should make my site compatible? Who decides where backward compatibility cut off point should be?
Should I tell my client that the site should be non standards compliant and that when the emebed tag is deprecated he will have to pay to have his site fixed or should I tell him I have made his site standards compliant and that it will be several browser generations before it needs to be fixed?

In my view minority groups using old non standard browsers should upgrade their browsers. There are plenty of free browsers out there which work just fine without the embed tag. Pandering to the minority groups just puts development costs up for your clients, requires more testing and is a pain. Just think how many millions of man hours have been wasted just trying to make web sites compatible with all the DOM, HTML and javscript implementations out there. The point of introducing standards is to stop that waste and make everyones life easier.
If that meens a few people who won't upgrade their systems don't get to see my website then so be it.