Do you know what it means? The "mount" command tries to mount some partition of your hdd (in this case phone memory) in your filesystem, so it would be accesible via /mnt/n900sd in this case. It's needed to be done for every partition/storage/etc.etc. to read or write files on them. It FAILED. So /mnt/n900sd was not poining to any external partition (as it should), it was just a directory (think of "mount" partition as some magic trick to change a folder into a hard disc ). So when you ran "tar" command, N900 tried to decompress whole 2GB EasyDebian image to small N900's 200MB root file system. That's why you got errors and 0 space left on device - you tried to extract 2GB of files to 200MB of space

If you still have problems with extracting (phone reboots while doing that) and you have access to PC, you can connect your phone to PC, transfer lzma file there, extract it on computer and copy the extracted image back to N900. Under linux, instructions are basically the same, but I think you are rather not linux-guy :P Under Windows you can use program called "7-zip" to open and extract it. It's available for free at www.7-zip.org