Largest HTC Desire SD card?
Your phone (as most other Android phones) have two kinds of persistent storage -- internal and external. The internal storage is fixed into hardware, and is not intended to be user-serviceable. Your SD card is the external storage, and is very much replaceable -- it is very accessible and can be swapped for another one, including greater capacity ones (see this question for some additional information).

However, replacing the SD card won't help in your case -- your phone complains that its internal storage space is low. This is a problem that has plagued HTC Desire, which is otherwise a great device.

Some things you can do:


Move applications to the SD card
Remove unneeded applications (from your words, not quite possible)
Clear up some messages, drafts, application caches, and in some cases application data
Downgrade some of the preinstalled applications that you do not use. See this question for more details