Just to be sure, your space problem is on the HD on your PC, and not that you run out of space in the target app on the N64?
I would not disable the debug info generation because of disk space, I don't think that this is worth the effort. The only reason I see for not generating DWARF debug information is to distribute a static library. Anyway, as you noted, the startup code does require the debug information during the link stage.
If you are not using C++, you can delete the lib\hc12c\lib\cpp* files in the library, for me the take 80 MB,
and I hardly ever use them. lib\hc12c\hc12_lib.mcp can be used to rebuild them.
Also if you are really low on disk, the _Data folders on currently not used projects can be deleted, their content is recreated when you build the next time the corresponding project.
Daniel