Seems to be resolved here
I have HTC desire and am following this:
Comment 50 by teej...@gmail.com, Oct 12, 2010
It might help to understand the reason behind this issue.
Linux typically reserves a fixed % of a block device for use only by root so that if the device runs out of space for regular users the root user (and privileged system processes) can still write to the device. If I recall correctly the reserved amount is 5%.
I encountered this issue recently on an HTC Desire with Cyanogenmod 6.0.2 (Android 2.2 Froyo).
1. Seeing the "Low storage space" warning
2. Unable to receive new emails using the Gmail app
3. Downloads inexplicably failing to start in the Market
I found this issue report and from it discovered the reason and a fix.
The device has a fixed amount of EEPROM (electrically erasable programmable read only memory) aka 'flash memory' that you can think of as equivalent to a hard disk - it stores programs and data when the device has no power.
On the HTC Desire there is 512 Megabytes of EEPROM (aka ROM).
Android partitions this storage space into three block devices, each with it's own file-system. They are 'system' (the operating system files and libraries), 'cache' (temporary files created and used by running processes) and 'user' (databases and other files created by all the applications on the device).
By default the EEPROM space is divided in a way that leaves lots of unusable free space. On the HTC Desire there was ~120MB free in 'system' and ~30MB free in 'cache'.
The 'user' partition is the one that is running low on free space. On the Desire it had less than 6MB free which is inside the 5% limit mentioned, meaning regular apps that don't run with root privileges couldn't write more data.
In addition, the dalvik virtual machine's cache (where the native executable code to run each app is stored) is also stored in the 'user' partition. This means that the more apps that are installed and run the more space in 'user' is in use.
Some determined hackers discovered a way to change the sizes of these partitions so that the 'system' and 'cache' partitions can be shrunk to be just slighter larger than is needed ('system' only needs to be large enough for the Android system files and any apps bundled with the phone such as the Google Apps).
After following the guides on how to change the partition sizes my HTC Desire went from ~6MB to 170MB free in 'user'.
The instructions for the G1 are at:
1. Back-up, resize the partitions, restore, reboot. [MOD][RECOVERY] Firerat's Custom MTD Partitions (resize Data,System and Cache) - xda-developers
The HTC Desire requires an additional step to 'unlock' the EEPROM since HTC have included the @secuflag stored in the radio's NVRAM which forces 'system' to be read-only, preventing the re-partitioning.
So, for HTC Desire it's:
1. Replace HBoot loader with one that ignores the @secuflag.
[AlphaRev] HBOOT S-OFF Desire GSM 1.8 - xda-developers
2. Back-up, resize the partitions, restore, reboot. [DEV][S-OFF] Custom MTD Partitions (resize data, system, and cache) - xda-developers