i3g,
When syncing apps to your iPhone, it's normal for the "Apps" storage to increase, which is marked by a green color. "Other" should only consist of the operating system of the iPhone (2.2), contacts, calendars, mail accounts, etc. So restoring your iPhone would be an appropriate troubleshooting step.
A restore basically reinstalls a clean copy of the latest version of software (it will stay at version 2.2). Erasing all content and settings take this a step further by writing 1's to your storage on your iPhone. This is purely a security measure, and is not necessary for your situation as the process can take an hour or more, whereas a restore normally takes around 12 minutes in my experience.
Before restoring, I would recommend you back up your data by syncing it to other programs. The overview on syncing I provided above would show you how to do this. You should also copy down any email account settings you have for the iPhone, as well as email any notes you've created to yourself from within the Notes app. You can also import any camera roll photos into your computer using a supported program, as well as transfer iTunes Store / App Store purchases:
iPhone and iPod touch: Minimum system requirements
http://support.apple.com/kb/TS1323
Copying iTunes Store purchases from your iPod or iPhone to a computer
http://support.apple.com/kb/HT1848
If you back up your data in this fashion, after the restore you can safely choose to set up your iPhone as a new phone (recommended to resolve the issue you're experiencing) and then sync all your data back to your iPhone.
Hope this helps,
Raleigh
