How much RAM do you have? Where is the message coming from? What do you have running when you get this message? Are you low on RAM or disk space or both? We could give you much better answers if you'd post the answers. 60 GB is usually not enough for a Windows 7 hard drive, if that's all you have. While you can install Windows 7 in as little as 20 GB, that's not a practical minimum because of many things including applications, restore points, paging file, hibernation file, updates, user data, etc. etc.
XP Mode runs very well in both 32 and 64 bit systems, but it's only available for the Professional, Enterprise, and Ultimate versions of Windows 7. You probably have the Home Premium version. Your best option if you need XP Mode would be the any time upgrade for $90, but understand that it will take more resource including disk space and RAM.
Please provide the requested information and we can give you more specific things you can do.
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