PRS-T1 No available space

For some reason, my rooted PRS-T1 keeps telling me that there's no space available. I keep seeing the warnings notification, and indeen, the settings say the internal phone storage is down to 3.57 MB available space.

The only problem: It's just not true. When I go into USB mode, "Reader" has 1.3 GB available. Or am I missing something?

Thanks!