I have an SD card which is 3 GB, but I only have 4 downloaded apps and the internal storage almost reach its capacity and thus yet I have an insufficient space problems.
Try clearing cache for your internal storage and transfer "unimportant" files to your memory card, this will create some space for your apps to be installed.
Take a look at this answer.
Apps are stored only on the
/data partition, which is only a part of internal storage. So even though you have space on your SD card, (either internal or external), you may not have enough space to install your apps.
Uninstall the new Google Play Store App to factory settings every time you want to download a new/updated apps. I know this is a pain of a * but this works because it does not leave room for your Google to check updates, like Google books for daily newspapes or magazines which needs the space even if we do not use that app. I even hate how the new app looks and now in Google's newest version (5.3.6) they hide details for memory and price along with other details.