REASON: Netscape is obviously unable to handle files greater than 2 gigabytes. If your Inbox (represented by the file "Inbox") is larger than 2 gigs, Netscape cannot write to it. In that situation compacting the folder is useless, as well. The file doesn't get smaller.

LOCATION of the files (Netscape 7):
The email files are in
\windir\Applicationdata\Mozilla\name\
something.slt\Mail\mailbox
where
windir is the directory where Windows
stores its files
Applicationdata I am not sure if this is the
actual name as I used a German Windows version
name is a chosen name, e. g. the
"Computername"
something is a random character string
mailbox is the mailbox folder name
(appearing above the Inbox
folder)

SOLUTION
Start Netscape Messenger
Delete or move some messages from Inbox in order to prevent the new Inbox being over 2 gigs, too.
Create a new folder (in the same level as Inbox) and call it Inbox_new.
Copy all mails from Inbox to Inbox_new.
Do NOT copy any subfolders from Inbox!
Close Netscape

Start Windows Explorer and look into your mailbox directory (see above "LOCATION of the files")
Rename the file Inbox to Inbox_damaged (Very likely you won't be able to delete Inbox as Netscape has locked it somehow. Renaming works, however.)
Rename the file Inbox_new to Inbox
Delete Inbox.snm (sometimes named "Inbox.msf" - This is the Index file)

Start Netscape Messenger
Look into Inbox - the index will be rebuilt.
Inbox folder should be OK now - including subfolders.
You should be able to receive mail now.

Shutdown Windows and restart it.
Be sure NOT to start Netscape.
Using Windows Explorer you should be able to delete the file Inbox_damaged now.

REMARK
Netscape 4.7 has the same 2-gig-problem as Netscape 7.x. NS4.7 stores its files in a directory different from NS7.x. So if you happen to keep your NS4.7-files smaller than 2 gigs, NS4.7 will still be able to retrieve mail from the server. This may be the effect you experienced.