That system warning relates to available application space. For some reason Archos only devoted ~128 MB for applications, so you can fill that up pretty fast. You'll need to:
uninstall applications (settings, Applications, Manage Applications, then select and uninstall some)
or
move some applications to "internal storage", this transfers some of the space they're taking to the internal storage on your Archos. Again you'll go to Settings, Applications, then Manage Applications. From the list of applications select some of the larger ones and you may see a "move to internal storage" option. Some apps have this, some don't.
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