What the HECKS wrong with my MAC hard drive

I have a 249GB harddrive. 200GB are being used with 38GB available. I was advised to buy a programme called "WhatSize" to find out where my missing disk space went to.

Documents 10.1GB (Final cut project files)
Downloads 6.80GB
Desktop 5.40GB
Movies 3.21GB

Library/Application Support 5.58GB
Applications 7.51GB
Private 4.53GB
System 2.57GB

So im actually only using about 46GB. So I looked around and found a similar post to mine in which the poster solved the problem by running a disk utility (Why did'nt I think of that) so I did that and an error came up. I cant remember exactly what it said, somthing about "free space". So I tried to restart using a boot disk so I could run a repair on the hard drive but no matter what I tried the mac would not start up with the disk a folder would appear with a question mark and then It would just boot to the usual startup drive instead of the install disk.
BUT THEN I ran disk utility again and this time there were no errors. After some more researching I was playing around and just trying anything. I ran "Erase Free space" option in disk utility but it seemed to stall at the the section "creating a secondary temporary file". I googled it and found that If I let it continue It would create a huge file and eat up what little space I had left. So I cancelled it and ran WHATSIZE again to find this huge file that was created since sure enough my hard drive was now gone from 48GB free to 25GB free. But the file I found
private/var/GB Folders/Cp (etc etc)
contains one 137GB File..

WHAT IS THAT!?. I was about to just give up and reinstall OS but then I saw this should I just delete the file and re-run erase free space. None of this makes sense to me.

UPDATE: I Ran verify Disk Permission and then repair disk permission. And that got rid of the HUGE File so I now have 196GB free. Im still not satisified though. Should I jst re-run Erase free space again and why did this even happen in the first place. How can I prevent it from happening again.

Don't mess around with "erase free space" unless you have some very sensitive data on the drive that you don't want to ever be recovered again. Leave well enough alone and make backups.

You didn't mention how old your machine is or provide any other information about it, but hard drives do fail suddenly, sometimes without warning.

Im using Mac OS X 10.7, 2.26Ghz, 4GB ram.
I dont know what else to do with it. Im thinking about reinstalling OS but I dont have a reinstall disk. I bought the laptop second hand.

You don't need a disk to reinstall Lion. Just boot to your Recovery Partition and select reinstall Lion. The Recovery Partition also has other choices such as Disk Utility, and Time Machine recovery.

Reboot to the Recovery Partition by holding down the Command + R keys as soon as your hear the chime. Make sure you're connected to the internet and have backed up all your data prior to reinstalling.