I receive the error "Not enough free disk space" when installing my game from a CD on Windows Vista when I have more disk space free than required.
This is a known Windows Vista issue. In order to install your game(s) - using the contents of the disc(s) - you must move the contents of the install disc(s) to your Hard Drive, and perform the installation from there.
You may also acquire the game - via download - by activating the product code through the Steam application. Please see the Activating a Product on Steam article for instructions.