Its the 'pagefile' (virtual memory). No, you can't delete it, but you can change its size/location (from system properties, I think its performance tab - I'm on 2k at the minute). Its probably set with a min size a bit bigger than how much ram you've got and a max size of about twice that.
One thing - making min & max the same (so file is fixed size) is a good idea - just size to be worked out. And that's where arguments begin. M$ sets defaults based on how much RAM - the more the RAM the bigger the pagefile. I (and a number of others) think that's nonsense. The more RAM the less pagefile you need (because its what machine uses when it runs out of RAM). The only proviso, as far as I can see, is one of recovery options dumps the whole contents of RAM to the pagefile (for diagnostics) before blue screen/reboot. But IMO, that's completely useless (just set option to 'mini-dump'). I've run NT happily with zero size pagefile (yes, you can set it to zero) with 512MB RAM. Also, with 128MB RAM - 100MB pagefile.
PS. If you're pushed for space, clean up? Get a second drive?