how to delete the existing transaction log to free up the space
You can use the BACKUP LOG dbname WITH TRUNCATE_ONLY command. However, read the BOL for more information on this command. First do a full backup, then do the truncate, then do a full backup.
The log file can actually grow to a size LARGER than the datafiles. It all depends on what you are doing. If you defrag indexes, it can grow much larger (I believe it is recommended that you have 1.5 times the space available when defragging). While you CAN set the Maximum file size, consider the implications of doing so...if you set it too low your transactions will fail more often.
One cause of transaction failures, when you see the transaction log space error, is due to the tlog not growing fast/large enough.
Let's say your tlog is 1 MB and you set your tlog growth for 1 MB and you are trying to enter 5 MB of data. That means your tlog has to grow 5 times for all the data to be entered. Growing the files can be slightly slower than the actual transaction, so when a transaction is happening, it could be possible there isn't enough space AT THAT MOMENT. But the transaction will fail, even if in another second the growth would finish and the space would be there.
Setting the growth of the log and data files correctly is almost a science. You just have to work with it until you get the correct values.
-SQLBill
Posting advice: FAQ481-4875