"If you do not transfer these purchased items to your iTunes library, they will be removed from the iPod." I don't want to transfer purchases because they take up too much space on my computer, but I don't want them to be deleted from my iPod when I sync.

Can you provide background on what you are doing? It sounds to me like you are connecting to a new computer. A device can only be synced with one iTunes library at a time and if it connects to a computer with a different one it will erase the content and replace it with the library on the computer.read the article below about adding music from a second computer to an i-device.

Using iPhone, iPad, or iPod with multiple computers - http://support.apple.com/kb/HT1202

No, not connecting to a new computer - it happens having purchased something direct to the phone, when next connected to the usual computer, it asks the question above. I don't necessarily want to transfer the item to my computer, neither do I want to erase it from my phone.