Re: Insufficient Storage Available - El Reg should investigate!
Interesting. Now I have seen this problem many times, but never with 347MB free! Then again I've only seen it on my phone, which is considerably less gifted in internal storage than your device. In fact I doubt it's possible to free 347MB on this thing. This makes me wonder if it's checking for a percentage of free space to run the update process in rather than n MB......oops.
Second, try rebooting. When it's done this to me and I reckon I have enough free, a reboot usually sorts it out. I find Android rather reminiscent of the old WinMo product, easy to tweak, plenty of fiddles, but requires a reset fairly regularly to keep it ticking along smoothly (although to give it credit, far less often than bloody WinMo did).
Best solution I've found for dealing with a shortage of internal storage is root and a copy of link2sd. I'm running a 4GB second partition on a 32GB SD card with everything possible on there and symlinked to internal storage. Works a charm and link2sd automagically does this for anything new or updated. Hopefully this'll make it into a future version as standard as app2sd did.