Thanks for the suggestions. I have already deleted all the superfluous stuff: (temp files, etc). I deleted all the old backups (had some from 2010!) also. I now got about 100 free gig and I am giving another try to the backup with the imported items. Now it is just a matter or pride.
Just an FYI since I do not think I mentioned this in this thread. I recently bought a new dell server and installed vmware. I then virtualized (P2V) my old windows 2003 server (500 gig). During this process I repartitioned the server so it now has only about 300 gig. My plan was to eventually migrate to 2008 so this virtualized server is only temporary, hence the low memory. Of course, i did not anticipate having the issue I am having right now. In hindsight I should have made the data partition larger.
I do not plan to delete / reformat the old physical server right away. It is another backup after all. The virtualized old server (vmware) has also been backed up in its entirety to the recently purchased NAS so worse case scenario I can restore it to its original state as of this morning.