Sukum, I think you're missing a few points. When you turn on circular logging, Exchange transaction log files are not "overwritten" the same way that events are in event viewer and the even lots. What circular logging means is that when Exchange has completed all operations needing the transaction log files (which has different meanings for non-replicated, replicated HA copies and replicated lagged copies), Exchange will truncate those logs. It deletes them upon truncation.
What this means, is that when you enable circular logging in your example above, the full backup following wouldn't have logs 41-50 to back up (they would have been truncated) and the following incremental backups (#4 and beyond) will fail because there are not transaction log files that can be backed up (other than ones that have not been committed to the database).
Does that make better sense?