The
scratch disk is kinda like the windows swap file, but just for Photoshop. If you are having trouble with it, go into
Preferences > Plug-ins & Scratch Disks and alter the scratch disk information you have listed.
Since you say you have quite a bit of free space, you might have accidentally set a scratch disk as a full drive... or even your CD drive! If that fails to work, you may have a problem with your hard drive, so run scandisk on it...
