Defragging is a separate operation. After you free up some disk space, you should defragment as well. Also, if you have files such as letters or pictures that you don't use very often, you could put them on CD and then delete the copies on your hard drive. Another useful thing is to go to the Control Panel and pull up Add or Remove Programs. If you see a program that you know or can find out exactly what it does, and you don't need it, just remove it.
Or, for $100-150, you can do what I did, and buy an external hard drive to store stuff on.