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I've seen this same error on both a M426 and M477.
The solution I've found (trial and error with HP on the phone the first time, but it worked in both cases), is to go to Setup > Service > Fax Service > Clear Saved Faxes. The users were then able to send and receive faxes as usual.
Prior to "Clear Saved Faxes", when trying to send even a one page fax, the machine would pass the paper through the ADF, and immediately give a message on the display that there was insufficient memory. After going through that procedure, it was a noticeable difference in that it would begin the normal fax process rather than display anything about the memory.
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