Have you read these articles on SO: 

http://stackoverflow.com/questions/4709137/solution-android-install-failed-insufficient-storage-error
http://stackoverflow.com/questions/6788996/installation-error-install-failed-insufficient-storage-during-runing-emulator

Have you also tried it by wiping the data on the emulator before launching?

when using adb push which filesystem location do you push to?

Cheers,

Sanj

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