If your scratch disk were really full, it would mean that there's not enough space left on your hard drive for PSE to do its calculations. But usually that error message means your hard drive is too big. PSE 2 can't see a 1 GB drive, for instance. It wants 750MB or less. If you use windows you can possibly get around it by partitioning your hard drive, if you think it's worth it. There's no way to make PSE 2 run on a current mac.
Thanks, I do have a 2T HD. So a new version of PSE will work then?
Yes, there's no problem with recent versions. It's just that back in 2002 they didn't have drives that size and so PSE 2 doesn't know what to do with them.