Stumpy ~
You dont say how big your drive is but clearly an external hardrive would be of use to you (And can be had for around 50 quid for a good size these days. You could even buy a PCI USB2 compliant plugin for the computer to speed things up (If you need to)
As for what you have now ~
Uninstall anything you dont need. Backup what you can to disc (music, video, photo files etc)
Perform a DISC CLEANUP
Download CCLEANER (Make sure you click 'DOWNLOAD LATEST VERSION' ~ make sure YAHOO TOOLBAR is unticked on installation)
http://www.filehippo.com/download_ccleaner/
Run the CLEANER scan (UNTICK 'cookies')
Then run the REGISTRY scan (Backup the registry when it asks)
Install
DEFRAGGLER
Defrag the drive with it (Better at freeing up space than the inbuilt one)
I wouldnt bother using any software to compress files as its too much hassle and rather pointless