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>>Strange, I have 200GB free on my C: drive and 157 GB free on the drive where the database files are. The database is just about 10GB. Hmmm, this is the express version and I know that's the size limit, I wonder if that is why I'm getting the error.
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>Quick question - are you using SQL Express for production work, or is this a test development environment?
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Live/Production is the full 2008R2 version. My development machine has SQL 2008R2 Express and full SQL 2012.

>On the 99% - I am amazed you didn't get more catastrophic errors from SQL Server. When fragmentation gets that high, the overhead is severe and that probably explains much of the performance issue.

Yes, I am surprised too. I am going to recreate the test data using the sequential ids and see if that makes any difference. I'll also look at changing the field types and implementing indexes for my Exists statement and maybe try out the Merge suggestion from Naomi.

Thanks to you and Naomi for your input.