The size of files on the hard disk don't matter, as long as there is space for them. If the code makes 3GB of files and you have close to 3GB free on your disk, that could be causing the problem. If you have Windows 7, just open up 'Computer' and refresh it a few times while your code is running to see if any of the drives you use gets near 100% while your code is running.
The Memory (also called RAM) use, though, is quite a different issue. It doesn't matter how much you have, there is simply a limit on how much can be used at one time by a 32bit process (ArcCatalog, ArcMap and the version of Python that works with Arc are all 32bit). To see this in action, use Start -> Run -> enter taskmgr and hit enter. Get it onto the Processes tab, and click Memory a couple of times until it to sorts descending. Then start up your code, and you will see some Arc and python.exe processes appear, and they will move up the list. If any of the Arc or Python processes gets above about 3,000,000K while it is running, then crashes, this could be your issue.
If neither of these shows anything (i.e. there is enough hard drive space, and the Memory use doesn't climb too high), try commenting out functional lines of your code, working from the bottom of your try statement upward, until you have the simplest code possible that still crashes. Once you have found that particular operation that causes it to crash, we can probably help you more...