As for the error message:
"Could not complete this operation. There was not enough memory available."
Make sure you have selected your largest free drive for your scratch disk.
To change the scratch disk assignment:
1. Choose Edit > Preferences > Plug-Ins & Scratch Disks.
2. Choose the desired disks from the menus. You can assign up to four scratch disks of any size your file system supports.
3. Click OK.
4. Restart Photoshop for the change to take effect.
Note: (from PhotoShop)
Quote:
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To open a file, Photoshop requires free disk space for a scratch disk file equal to 3-5 times the size of the file. Because Photoshop's native file format (.psd) uses Run Length Encoded (RLE) compression, files saved in .psd format are often larger in size when opened in Photoshop than when saved on the hard drive. The more alpha channels and layers in a .psd file, the more hard drive space Photoshop requires to open the file. If a .psd file has many channels and layers, Pixel Dimensions field in the Image Size dialog box may indicate a file size that's more than 10 times the file size indicated by the operating system. For example, a file whose size is 25 MB file on the hard drive may open as a 500 MB file in Photoshop if it has many channels and layers.
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If this doesn't work you may want to delete your preference files. When the preferences file is damaged, Photoshop may return an error regarding available RAM (i.e., memory) or Scratch Disk space. Deleting the preferences file and restarting Photoshop forces Photoshop to create a new preferences file that contains default preferences settings and default plug-in folder and file information.
Note: Resetting your Preferences restores it to its DEFAULT setting. Meaning all custom presets will be lost. (Like actions, brushes etc) So its best to Back them up/ Save them as indivual preset libraries and move them to a temporary location. Then reload after the Preferences have been reset.
To re-create the Photoshop preferences file:
1. Quit Photoshop.
2. Drag the Photoshop preferences file to the Trash:
-- Photoshop CS: Drag the Adobe Photoshop CS Prefs.
psp in the Users/[user profile]/Library/Preferences/Adobe Photoshop CS Settings folder to the Trash.
-- Photoshop 7.x: Drag the Adobe Photoshop 7.0 Prefs in the Users/[user name]/Library/Preferences/Adobe Photoshop 7.0 folder to the Trash.
3. Drag the com.adobe.Photoshop.plist file from the Users: [user name]; Library: Preferences folder to the trash. (The com.adobe.Photoshop.plist file is a Photoshop preferences file run at the system level. Like other Photoshop preferences file, it's re-created when Photoshop opens.)
4. Restart Photoshop.