There are several detailed how-to posts about this. If you are an advanced user, you can use resize2fs to grow your image up to 2GB. You can also make a partition on your SD card and copy your image file into the partition. A slightly less advanced option is to make a directory on your SD card for your apt cache and then mount it in your chroot. You have to do this each time you reboot or close the chroot, however...
i also had lack of free space on my ext2 image... since my os2008 resides on the internal mmc (mine is a n800), which is ext2 formatted _already_ and has more or less a couple of gbytes of free space, i decided to copy the entire content of the image inside the /debian folder directly. this way i solved any issue related to lack of free space, my /debian environment soddenly became "dynamic" (it takes the exactly amount of disk space it needs), and it is much faster! (no need to mount the image as a loopback device, and no need to load other kernel modules to handle it!) today i installed "qcad", a true cad running on my tablet... this chrooted debian trick turned my n800 in a BEAST!