HTC Wildfire S here, with little internal space. What worked for me was
1. Restart phone
2. Clear the cache on all apps through low storage wizard: Settings/SD & Phone Storage/Make More Space and clearing all cache
3. OPTIONAL: I Cleared data for all applications I didn't need in order to make more space to actually download the app: Settings/Applications/Manage Applications - click each app that you don't typically use or can live with deleting data from like Google Maps (I don't need it to save stuff for me) and click clear data (don't do this for the apps you don't want to delete usernames, passwords, photos, files, facebook friends)
4. Sign in to Google Talk (for some reason you need to be logged into Gtalk to download or install from Android Marketplace)
5. Try re installing the app
Voila! Hope this helps.