I had the same issue. In my device it had the original factory firmware and when I tried to upgrade it I got the same warning. I ignored it, which was a mistake. The firmware upgrade was not successful and the device booted up in Safe Mode and almost nothing works on it.
Looking at the bootloader upgrades, I noticed that the safe mode was removed in 2017. That probably explains why it was complaining about the space. So I upgraded the bootloader, which was a bit tricky too, because now I couldn't see what version I had (the non Web version worked for me).
After the bootloader was upgraded the Safe Mode was no longer available, but now I was able to upgrade the firmware. Everything was back to factory settings, but at least it was working.
Anyone with this issue I recommend to upgrade the booloader first. That should liberate the space needed for the firmware upgrade.