You need to make sure you either start the emulator from within the IDE so it gets passed the correct flags, or you can start it from the command line if you want to pass the flags yourself. By default, emulators do not have enough space to hold the entire debug runtime.

http://docs.xamarin.com/android/troubleshooting#There_is_not_enough_storage_space_on_the_device_to_deploy_the_package

Hope this helps!
Jonathan

On 4/11/2012 8:54 AM, craig wrote:
I tried deleting and re-creating the AVD and it still did not help.  This
mainly seems to be a problem with versio n 2.1.  Will run fine if I select a
newer version.

I really need to run version 2.1 for backwards compatibility.  It always
seems like Mono for Android has more bugs and worse support with the older
versions...

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