Source: http://lifehacker.com/5520271/stop-picasa-from-filling-your-hard-disk-with-unwanted-screenshots
Whenever Picasa is open if you press the "print screen" button to snap a screenshot with another screenshot application, Picasa will double up on the effort and save a roughly 2MB BMP file in the folder /My Documents/Picasa/Screen Captures/. There is no toggle in the Picasa options menu to turn this feature off—or make any adjustments to it for that matter—when Picasa is running it will always snap screenshots. Sure you could "solve" this problem by always turning Picasa off when you want to snap screenshots or map your favorite screenshot application's hot key to another key besides "print screen" but both of those solutions are hardly ideal.
I initially sought to remedy this problem simply because it annoyed me. I hated the little Picasa screenshot notification popping up in the lower right side of the screen every time I used my other screenshot app. It wasn't until I actually found a solution and went to delete the screenshots that Picasa had been taking all this time that I found Picasa had chewed up nearly 7GB of disk space with useless screenshots. The following hack will disable the screenshot function in Picasa and halt the build up of disk-hogging BMP files.
A bit more detail for XP Pro/Vista Pro [Ed. Note: Works fine in Windows 7]
1. Locate the screen shot folder that Picasa creates. Something like My Docs\Pictures\Picasa\Screen Captures
2. Right Click on it > Properties >Security Tab
3. Goto Advanced > Then in the permissions tab click Edit.
4. Un-check the "Include inheritable permissions from this objects parent"
5. A pop up will ask you if you want to do this and if you want to copy or remove the permissions. In this case you want to "remove" them.
6. Apply everything and check that you no longer have access to the folder.Some info for Xp Home/Vista Home
1. Goto this link on information about how to get a security tab, so you can edit these settings. The easiest is to boot into safemode.
2. Follow the directions for XP Pro.
When you're done the permissions menu should look like this:
Once you remove Picasa's ability to use the "Screen Capture" folder it simply gives up on taking screenshots—problem solved! If you ever want to use the screenshot feature in the future just reverse the steps, adding permission to access the folder instead of taking it away. Thanks Jeffery Klassen!