Maybe the low disc space message is referring to a partition other than the one your operating system is installed on - possibly a small backup partition used by a security suite like Norton 180? I have seen this on a laptop, where the backup partition was 8GB, and Norton was completely filling it with backups. But it doesn't have to be Norton - many programs can do this...
Assuming Windows XP, Try this:
Start>Control Panel>(top left)switch to classic view(if not already set)>administrative tools>computer management>disc management
What do you see in there? What we are looking for is more than one partition at Disc 0. For example, my PC has 6 partitions here, labelled C: E: F: G: H: I: You may only have one, probably labelled C:, but it is possible you have a second, smaller partition which is full.
What sizes do you see on this screen? What percentages?