I am using Music Disk Creator 8 Build 805B56B ENU.

Windows sees 8.96 GB free space on my disk.

Music Disk Creator 8 says there is no space - zero - available to copy an audio CD.

Has anyone else encountered this problem and, if so, what was the solution?

After giving me the error message that there is no space, Music Disk Creator 8 displays another error, reading: "An invalid argument was encountered." That seems to be such an obscure error message that Roxio's knowledge base has nothing on it.

Temporary files are set to copy to the same disk.

This problem occured intermittently, in the past. Now, without any updates being applied and no other changes being made, it seems to be happening 100% of the time.

I would first start by deleting your temp files. Some helpful info can be found here.

I don't think you can use a DVD to make an Audio CD.You can use one to make a Music DVD.Try a cd and see what happens.
Another thing to try is Disc Copier instead of Music Disc Creator