Yesterday I had to install VS2008 SP1 on a computer with limited disk space on C:\
Even though VS2008 itself was installed on D:\ the installer (which is 800MB) still required 3.3 GB of space on C:\
I molested C: until I had enough space to perform the upgrade, but I felt something was wrong. After some searching it turns out that due to various issues, the rule of thumb for Microsoft issued service packs is that you should have approximately 4 times the size of the service pack itself as free space.
So for VS2008 SP1 update, you need 4 x 800MB == 3.2GB of free space on C:\
It might be possible to manipulate it a bit by setting %temp% to another drive or so. Whatever.