How do i reduce the size of the winsxs folder in Windows 7?

However i am unable to download and install SP1 due to not having any hard drive space. 

If you're unable to repartition your hard drive as Ron suggested you can do the following to gain free space.

Free Up Space - Increase Hard Drive Space 

The following procedure cleans up files associated with your user account. You can also use Disk Cleanup to clean up all the files on your computer.

1. Click the Start button, in the search box, type Disk Cleanup, then click Disk Cleanup.
2. In the Drives list, click the hard disk drive that you want to clean up, and then click OK.
3. On the Disk Cleanup tab, select the file types you want to delete.

Note: To Remove all System Restore Points Except the Most Recent - Click "Clean up System Files" and you will get another tab called More Options. Now click More Options, then click "Clean up" under "System Restore and Shadow Copies" then confirm the deletion.

4. Click OK on the bottom of the Disk Cleanup window and in the message that appears, click Delete files.

Reduce the amount of space allocated for System Restore. 

1. Start-->Control Panel-->System and Security-->System
2. Next click on the 'System protection' link located in the upper left.
3. In the 'System Properties? window click on the 'System Protection' tab.
4. Locate the 'Protection Settings' box and select/click on the drive letter (usually C:)
5. Now click on the 'Configure' button to change the 'Disk Space Usage' Restore Settings.
6. Move the slider to reduce the amount of disk space System Protection can use (min. 2GB).
7. Click the 'Apply' and then the 'OK' button after you have adjusted the disk space.

Uninstall Programs You Don’t Need

1. Click Start, then click Control Panel
2. Click Add/Remove Programs and uninstall programs you don’t want

Reduce Pagefile Size

1. Open control panel and choose system and security.
2. Click on system
3. Click on Advanced  system settings.
4. Click on advanced tab.
5. In the performance section click on settings.
6. Click on Advanced  and choose  Change in the Virtual Memory section.
7. Uncheck Automatically Manage Pagefile size
8. Select Custom and enter new size (don't go under 512MB) in both boxes and press Set.
9. Click OK and restart your computer

Turn of the Hibernation setting

If you don't use hibernation you can turn it off and free up disk space:

1. Start --> All Programs --> Accessories
2. Right click CMD.exe and click "run as admin"
3. type: powercfg -H off
4. Press Enter
5. Exit and restart your computer

The Winsxs folder is not a normal folder and the size shown is deceptive. It should not be touched.

You can read more about it below.

The Secret Of Windows Windows 7 Winsxs Folder:

http://www.winvistaclub.com/f16.html

What is the WINSXS directory and why is it so large?

http://blogs.technet.com/b/askcore/archive/2008/09/17/what-is-the-winsxs-directory-in-windows-2008-and-windows-vista-and-why-is-it-so-large.aspx