I keep almost all my content on a CF card, and my /mnt/free has only 19 MB used (out of 128.1M). This seems to be mostly books and documents provided by iRex, although I do have a couple of dictionaries that account for 8 MB.
So I think it is /mnt/free that represents "your" 128 MB, and the 100 MB used should be mostly your stuff.
If you have a lot of books or documents, the usual approach is to install a CF or MMC card and use it for your content. Note that the iLiad does have the du command, which you can use to track down where the 100 MB in /mnt/free is residing. One of my favorite Linux commands is: