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koensayr -- That sounds pretty strange. I know this thought pretty basic, but Is your system mounting multiple partitions on mountpoints under / (e.g. usr, tmp, var)? using tmpfs for /var/tmp? (i.e. you could have plenty of space and inodes on / but be short on one of those where portage unpacks). If it is, posting the output of "mount" and showing your /etc/fstab might help.
Sorry if you're already way beyond that - just thinking basics first.
Thanks for the response, I had figured this out after many hours of digging just before your post.
You are dead on with your answer actually.
I will write a more detailed description of what exactly happened here so hopefully someone else who runs into this similar situation will be helped.
1. My /var is mounted from a different partition than /
2. emerge unpacks into /var/tmp during installation, and /var did not have enough space to unpack everything.
3* the error "tar: ...." message did not give the full path of where the disk had ran out of space. It just showed "portage/....." for directory, therefore, I was thinking it was saying /usr/portage had ran out of space, which was part of / and had plenty of space. Perhaps this can be fixed to show a more useful error message? I don't know if this is part of portage or if it is tar.
4. Apparently, after I cancel the emerge command using ctrl-c, it cleans up the temporary directory, so that when I do a df after cancelling, it shows /var as only being 4% full, this combined with the non-full-path given by the error message made it really difficult for me to figure out what was happening.