What do we do if we need to place a large minion and all minion entry spaces are occupied?
I agree, it isn't completely clear from the rule book what to do. Page 14 covers, Placing Minions on the Board, and notes to add new Minions to (not full) minion entry spaces. Luckily, the designer, Jerry Hawthorne, responded to that question on BGG:

Q: We had a situation where a surge called for a centipede, but every spawn space was taken by either a small monster or a mouse. We just didn't spawn the centipede because it couldn't &quot;fit&quot; in any space; was that correct?
A: That is correct.