Is this in a corporate setup? Check with your IT department about the read email issue.
The space Outlook is talking about is not your hard-drive, it's the Outlook storage. You are either using an old PST file format which has a max of 2 gig per file limitation, and tends to get corrupt a lot sooner than that. Or you are on a corporate setup with email size limitations.
If you setup your email yourself, you probably have it as a POP3 account from the sound of things, check here for a fix, last post. http://www.emailquestions.com/microsoft-exchange/2125-my-email-comes-read-outlook-when-i-use-pop3.html
Or see if the email setup will work with IMAP instead of POP3, using IMAP should clear this up, aside from the space issue.