Setting the "Max # of builds to keep" for a job does not cause old builds to be discarded. I set this as Major as this will lead to the build system dying after running out of disk space.

I have found a work around here: http://groups.google.com/group/jenkinsci-users/browse_thread/thread/5573bee99bc2c42d

I created a job in my Jenkins instance to run the following groovy script (as a "system" groovy script - not sure if that matters...) - this forces the old builds to be discarded per what I have defined in the config:

import hudson.model.*
for(job in Hudson.instance.items) {
   job.logRotate()
}