No folder should have over 2GB of data. Generally the Inbox and Sent folders are the folders with too much data. Be sure they are under the 2GB limit. Generally this is less than 10,000 messages but with large attachments could be less. Make subfolders e.g. Inbox 2011, Inbox 2010, Sent 2011, Sent 2010 etc to help reduce the number of messages in a folder.
Many users will think that the amount of free space required is excessive. Like Entourage recovery, it does take enormous amounts of free space. The size of the Identity, the amount of corruption, fragmentation on drive, RAM are all factors that will determine how much space is required to rebuild.
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They were not the solution.
I finally found the solution with a Microsoft Level 2 tech.
THE SOLUTION:
We have 5 email accounts Outlook was pulling from. 1 Exchange, 2 IMAP, 2 POP.
After deleting all the extra folders and virtually everything else I could, the Identity size only fell from 45 Mb to 44 Mb.
The solution was to delete the Exchange and IMAP accounts and that released the space in the Identity which quickly fell to 8Gb.
Exporting folders and the rebuild of the Identity both worked then.
The overall size of the Main Identity should be @ 20-25 Gb. At a size smaller than this, Outlook 2011 will shrink the size of the Identity dynamically based on the email, folders, etc. that are in it. Deleting items will cause the Identity size to shrink.
Above a certain point, perhaps 22-30 Gb, this will not happen and the accounts holding the Exchange and IMAP email must be deleted to release the space.
While we created a new identity as part of the process, I do not know if that was necessary. It was the deleting of the Exchange and IMAP accounts that did the trick.