So I have the issue described @ http://beaglewiki.org/Troubleshooting under the section "ioctl: No space left on device". I've found another user that does too. Following the instructions to increase the value to 16384 and everything is happy. So I'm suggesting we increase the value in the kernel by default, which is what I've done.
Created attachment 62375 [details, diff] inotify_beagle_watches.patch Simple 1 liner to make it happen.
Please get this changed upstream. As it can be adjusted through userspace its not something we'd want to put in our kernel.