How to set your inbox to your hard drive in MS Outlook 2007

use PST file :
http://office.microsoft.com/en-us/outlook-help/create-a-new-data-file-and-move-or-copy-items-to-it-HP003082356.aspx

Yes I know about this, but I would like to avoid having to manually place messages into these .pst folders from my inbox to free up space. I rather just have my inbox set to my hard drive so I do not need to create .pst folder. Would it work if I just dragged my inbox folder to the .pst section? Would I still receive new messages?

i dunno of a way to do this , may be you can use the Auto archive option , to automatically move messages to your PST file.
http://office.microsoft.com/en-us/outlook-help/CH006356465.aspx

As M-Manakhly suggested, you could use auto-archive or rules to do this, but instead it sounds like what would suit you better is to change your mail delivery location to PST, rather than having it split between mailbox and PST.

Here is the Microsoft detail on how to change delivery location - http://office.microsoft.com/en-us/outlook-help/change-the-data-file-where-content-is-saved-HA010121955.aspx

One thing to bear in mind however - if you have a BlackBerry, the optimal setup for the BlackBerry may be that your mails deliver to the mailbox. Changing delivery location will also change your default contacts/calendar etc. to those in the chosen delivery location - if you have a BES server in your environment, your BlackBerry may be currently set to wirelessly synchronise your contacts/calendar/notes with your mailbox which will cause confusion if your Outlook primary delivery location is a PST on your local PC.

HMmm I tired that and do not see the option to change the delivery location for my inbox. Do note that this is a corporate email account so I am not sure if there are certain limitations.

Hi Jintonix,
In a corporate environment, it's more likely that an administrator will disable the ability to create a PST than disable setting PST as the default delivery location. It sounds like you are able to create a PST though, so I suspect this is not the issue.
Just to verify the steps for configuring PST delivery with Outlook 2007:

So if I understand correctly. If I create a new PST file (for example 'ABC') and set that as default, all my new incoming email will go to that 'ABC' PST file instead of my original inbox that has only 50mb capacity?