How much free disk space do I need to install Lion, and how much will I lose by upgrading?
According to http://www.apple.com/support/lion/installrecovery/ you only need 7G of free space.

Amazingly small amount of space considering the download is 3.6G itself. 

Many are reporting gaining back between 5 and 10 GB of space as Lion is more compact than Snow Leopard.