Hi HomerJ,
What I would recommend is that you complete the entire upgrade process on the prorjects and then create copies of the repository and project DB schemas and save them somewhere archived until needed. You can then delete the project from the current server and that will remove all traces of the project and delete the project repository and db schema freeing up space.
I recommend that you complete the project upgrade as if ii the future you need the project it will be a simple restore, otherwise you will need to upgrade the project after you restore it to the current version. I recommend upgrading now as I have seen where clients didn't upgrade and then later decided to restore the project and the versions had been upgraded quite a bit and they needed to set up an intermediate versions to be able to bring it into their current version, so if you didn't upgrade the project now and just saved the repository and db schema backups when you decide to upgrade you may be caught in that same situation that upgrading and then removing would have avoided.
archiving will take the same space but the projects will be located somewhere other than the project schema on the dB and the project data within the project repository (with archiving you'd make a copy of both of those files and store it somewhere else, either on a storage drive, or possibly on a removable storage drive and off the system somewhere but that can be brought back to the main system as needed).
By deleting the project through the ALM site admin it will permanently delete the project schema from the DB instance and the project repository from the server's project repository location and remove the project from the project list, This action is unrecoverable so make sure that you have back up copies or are prepared to permanently lose all project data should you do this (it is the same as manually deleting the files from the server location and then emptying the trash can, it is unable to be undone) as the storage space is then freed up.
By removing a project from the ALM site admin, you are removing the project from the project list but all the resources remain intact in their present locations (the project repository on the storage location and the project schema within the DB instance) and the storage space is still being occupied and used on the system.
I was suggesting to make your back up copies and move them to a storage location and then deleting the project from the site admin as the space on the application server and DB will be freed up but the project will still be available to be restored at a later date by moving the repository back into its location and restoring the project schema to the DB instance to allow for the project to be restored and data obtainable.
Hope this makes sense. I would recommend always having an archived version just in case something is required for documentation, as certain FCC and FDA regulations have restrictions on how to dispose of and back up data for audit purposes.
You can find more about archiving the projects and the recommendations as well within this post too:
http://eyeontesting.com/questions/13506/what-is-the-best-practice-recommendation-for-backi.html
Hope this all helps,
Dan