Android app installation displays error message -insufficient storage- though still 10 GB free space I use an acer liquid z 4 and a 16 GB SD card as main storage. While trying to install a small cheat sheet for emacs, I got the error message "Error while downloading. There is insufficient space on the device". However under Settings SD card still has 10 GB of free space.
There are a number of memory areas and Android tries to download the new apps in a particular one. 

One good option is to clean out the logs: press phone and select keypad, punch *#9900#. A new menu appears. press the second one down "Delete dumpstate/logcat". And you are good to go download a few more apps.