Well it appears that this version of Ratchet and Clank has a bug in the disk, a glitch if you will, where if there is nothing on the HDD then it reads it as being over full (thanks Google!). But with no other games on that day I had to resort to downloading demos (500 MB’s worth) before being able to play my very first PS3 game.
"We recently discovered a bug on the US version of Ratchet & Clank Future: Tools of Destruction that some of you may encounter the first time you boot the game. With specific amounts of free space on your drive, you may see a screen that tells you [you] have insufficient space to create game data even though there is plenty of free space on your drive."
-Insomniac Games community manager James Stevenson
I can only image the frustrations for all those first time PS3 users when Ratchet and Clank first came out, and this information was not available on the web.