Disk error in Panther with PS 7.01 and 256 MB RAM

I get this message with 1.75 GB of Ram.

The latest was working on a file from my digital camera, about 11megs, the time before that on a 34meg psd file.

I was able to save to a different drive.

I just tried on another image and it did it again. I'll try repairing permissions and see if that fixes it. This is becomming a recurring problem for me that I did not see before upgrading to OSX 10.3

How many hard drives does your computer have? I was using a secondary hard drive as a scratch disk and I found that turning on "Ignore ownership on this volume" under Get Info solved a similar issue for me.