So if you have problem with installing application from Android market and getting error about insufficient space available or something like that. So here ir solution for this:
My phone - HTC Hero
Turn off phone, and press home button and power button. when screen shows up release buttons and select partition sdcard... just keep pressing scroller button until you see finish. it helped me.
More info can be fount here: http://forum.xda-developers.com/showthread.php?t=638584&page=95