I have seen the same thing happen to my hard drive since enrolling in iTunes Match. Fortunately there are a couple of options.
One option is to select any songs you'd like to down-convert, right-click (or ctrl-click) the selection, and choose "Create xxx Version". This will re-encode the tracks based on the encoding options you have set within iTunes Preferences. Feel free to adjust these settings to the quality of your choice. Once they have finished converting, you may remove the higher-quality local copies. iTunes in the Cloud will retain the higher-rate 256kbps version, but your computer will now have a lower-quality version to playback from.
You can also remove local copies of songs entirely, by selecting them and pressing "delete". The songs will remain in your iTunes library as stream-able tracks through iTunes Match. Before doing this, though, I highly recommend backing up your entire library of songs to an external hard drive for safekeeping.
Hopefully between a combination of these two options you can reclaim much of your lost space.