I have a HTC Wildfire S, and it's only got 4GB storage. I have a 16GB mirco SD card, but I can't download things because I'm out of the 4GB space (I don't know how ... ), so I can't get them installed so I can then move them to the SD card. I'm not great with technology, so I may be missing something, but this is just really annoying.
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To answer your question, you will need to move apps to your SD card off of system storage after their downloaded. You can't download directly to the SD card, unfortunately.
Once an app is downloaded, open up Application Management in Settings and click the check box next to the apps you want to move to SD. This should free up some space. Be advised, however, that not all apps can run from the SD card.
It's in your best interest to clean up as much as you can, rather than trying to stuff apps on your SD card. In the Data section of Settings, you can see what items are taking up the most space.