Before you delete that file do this first:
First go to menu/settings/applications/manage applications/Select the "All" tab/market app/clear cache and data.
Than go to download manager and do the same.
Then open up a terminal emulator and type in this:
su
cd /cache
mv download download.old
mkdir -p /sdcard/cache/download
ln -s /sdcard/cache/download download
EDIT: The l in ln -s /sdcard.......
This is a small L
Then if none of these work do this:
Using a root file manager like Root Explorer or ES File Explorer, move the following file to your sdcard:
/system/etc/init.d/01mvdalvik (once moved, go back and check. If it is still there then delete it)
Reboot into recovery, then wipe cache, and under advanced wipe dalvik cache
Reboot, and then sign back into the Market, and you should now be able to download again (this lowers the amount of internal storage, but so long as you move most apps to the sdcard, it shouldn't be an issue)