DiskUsage shows 189 Megs of used space, of which System data takes up 118 Megs.
How can I find what application are using the rest? I have Android 2.3.5.
If you go to Settings > Apps, there will be a list of installed applications. If you press the menu button on that page, you can sort the applications by their size. Note that this size includes both the program files (APK) and stored data (databases, private saved files excluding those on SD card).