This can happen when people are not aware where iPhone backups go.
Even if you have your iTunes library on a separate drive from your operating system, the iPhone backups go on your C drive (the one with the operating system). C:\Users\<yourlogin>\AppData\Roaming\Apple Computer\MobileSync\Backup
If you go into iTunes, it will show the backups you have in Edit-Preferences, Devices. If your phone has multiple backups (ones with dates are old ones no longer being used) the old ones could be deleted, or moved to another location to clear up space. Also backups for phones you no longer have can be removed.
There are also files in Windows that can be deleted to free up space on the C drive (C:\Users\<yourlogin>\AppData\Local\Temp\* and C:\Windows\Temp\*)
See if you can free up space on the Operating System drive and report back if that is not the issue, or it helped.
Have you backed up your iTunes Library this week? If not, you are risking losing your music and playlists....