WSS V3 out of the box has extensive logging activity, Logs can be usually found in this directory and tend to grow significantly over time: C:\Program Files\Common Files\Microsoft Shared\web server extensions\12\LOGS
If you are running WSS V3 in a developement environement or in a VPC and want to optimize resources, you can disable logging activity by doing the following:
Go to WSS V3 Central Administration -> Operations -> Logging and Reporting
Click on Diagnostic Logging
Customer Experience Improvement Program: select No, I don’t wish to participate
Error Reports: select Ignore errors and don’t collect information.
Trace log: clear the entire Path.
Uncheck Enable logging
Uncheck Enable recurring policy usage reports
Please remember that once you have disabled logging it will be impossible to troubleshoot any PS nor WSS errors. This is not a recommended setting for any production system!