Given the clarifications in the comments, it sounds like iTunes is mis-reporting the free space on the phone.
Unfortunately, this may be an as-yet-unresolved bug in iTunes: there seem to be a heap of threads on discussions.apple.com describing this problem, with even recent posts lacking resolution. Here are two of them:
https://discussions.apple.com/message/16756343#16756343
https://discussions.apple.com/message/12869025#12869025
It may be worth watching those threads to see if there's a resolution - hopefully, if the bug's well-known by now, an upcoming iTunes version will fix it.
Settings -> General -> Aboutto see the phone's breakdown of how much media you've got. And on 5.0+, go toSettings -> General -> Usagefor a detailed breakdown of storage used per app. Hopefully the phone's own stats will provide some guidance. – Dan J Dec 1 '11 at 23:51