Video editing and file size limitations

I have a client which is trying to convert a movie from mpeg back to ai format so it can be dumped back to his digital camera. In the process of assembling the file the editing software gets to about 15% complete and quits with hard drive is full. Talking to the editing software maker, they said to switch to ntfs file system with windows 2000. In doing so the file size of non complete ai format file went from 2.3 gig to 2.9 gig but the edit still isn’t complete. Note the machine is a pentiumIII 500, 128 meg ram, 15 gig and 40 gig drive with the temporary file and finish product file stored on the 40 gig drive. When the error comes up there is 30 gig of space still available on drive d, and c still has 10 gig free. Suggestions?