I've been looking on an XP machine what is using all that diskspace, and it turns out C:\Windows\Installer is high up there on the list of directories that use the most diskspace.
It seems to contain a cache of msi and msp files.
Is it safe to delete those? To save diskspace, I've been deleting the "$KB...$" directories for ages without any problems. I want my Windows Updates in my system, why you would want to uninstall them is something that I have never understood. (Except when you're on an update revision board professionally or something of that order.)