CHKDSK Error - Insufficient disk space to recover lost data.

Unless you are missing data or important documents, you do not need to recover lost chains and convert them into files.  Most of the time the data from these lost chains is just garbage data casued from Temp internet files or something of that nature.  So you could safely answer NO to that qustion.  If you do feel like recovering the data though, run DISK CLEANUP and delete system restore points and temp files.

How to run disk cleanup: http://www.theeldergeek.com/disk_cleanup_utility.htm

By my reading, you have 2MB free space and 34MB of damaged files. :-(

I hope you have a backup, because it looks like your files are probably history... You may be better off accepting the inevitable and answering "no" to "Convert lost chains to files?"

Yeah.. that was my backup, and I don't have the original anymore, so I pretty much need to get that data back, is it possible to get just a section back and use the free space to recover that section?

The issue is that you have a ton (thousands) of lost cluster chains, and each of these needs to be given a directory entry in the root directory.  Only the root directory is a fixed size directory and can only hold a limited number of entries, and it this case, it's not large enough.

However, these are normally useless anyway, it is VERY rare that they are either of interest or useful (or recoverable into anything meaningful).

So the only option here, as I see it, is to answer "no" when it asks you if you want to convert lost chains into files.

[I understand your desire to get the data back, but your chances of doing it are slim.  First, you will have a huge number (thousands) of files with names like File0000.chk, File0001.chk, File0002.chk, etc., that you will have to deal with completely manually.  Secondly, THOSE files will likely be both incomplete and corrupted.  For those reasons, they are usually pretty much useless.]

Alright, so how can I recover the files with the filenames?

None of the files that would be recovered (if you had unlimited space) would have filenames other than the *.chk names assigned by chkdsk.

You can take a look at the files already recovered / present on the disk in order to find out if it is something important or not. If it is not important you can delete those files. Once you have cleaned the unusable files out, you will have more space to again run chkdsk. You will need to repeat this procedure until chkdsk tells you your system is clean. Be carefull with those recovered files, as they will normally be fragmented (1 file split into more than one files) and you won't know what type of files they originaly were. Another thing you could do of course, is to move all recovered data to another disk, and then repeat chkdsk.

i would start by deleting all *.temp files and folders, delete internet temporary files, and others you do not need anymore, or have already backed up. This would provide you more than enought space to complete the disk check.
BTW the *.chk files can be recovered, look at these  :

http://www.diydatarecovery.nl/~tkuurstra/chkmate.htm                  Chk-mate (fileo1.chk)
http://www.ericphelps.com/uncheck/                              uncheck

I used ontrack and got as many files as I could.. a lot of them are corrupt but I guess that's the best I can get.