After a back up and cleaning up RootFS i was around 56MB when the OTA worked. The OTA installation didn't seem a clean installation as the UI seemed sticky. So i reflashed using Maemo Flasher 3.5 and then back up restored. Much cleaner installation with flasher and the UI smooth as silk.
In all honesty i feel for the non tech n900 users out there juggling & struggling this Pr1.2 update
Damn... i was about 26MB with deactivated repositories.
Got that f+#*ing massege dont know how many times till i wanted to force it right now through the shell... Now the N900 starts, sound, the menu, where to input the code for SIMcard appaers, looks like in Windows98( just grey, and thats not normal with my theme...)
Then it restarts, i hope i can now flash directly to 1.2 and dont have to mess it all back again...