Hi Bojan
It seems as though you are using a 32k limited edition of the IAR compiler.
You will need to deactivate some parts of the project to allow it to compile. Open config.h and then deactivate some things like serial interface, SMTP etc. To remove lareg amounts of code deactivate UDP and TCP - this should shrink the project size to a few kbytes and then, after you have confirmed that it otherwise builds correctly, you can add services. Each time you build the project you can monitor the complete project size to get an idea of which services need to be avoided to stay within the size range allowed by the limited compiler version. It is still possible to make some quite useful projects even with the code size restriction.
Later you can decide whether to purchase the IAR full version or move to the GNU compiler (see the following thread for more details:
http://www.utasker.com/forum/index.php?topic=34.0). Check out also the Rowley Crossworks solution for the SAM7X which is available at a very attractive price for personal use but delivers a world-class solution which will work without having to learn to configure the OpenSource tools:.
http://www.utasker.com/forum/index.php?topic=67.0Regards
Mark
PS: To remove services in config.h simple comment-out certain defines.
Eg.
//#define SERIAL_INTERFACE to remove UART support
or
//#define USE_TCP to remove TCP and all TCP based protocols