See the KB articles for technical info on truncating log file:

http://support.microsoft.com/kb/q256650/

or even better yet:

INF: Transaction Log Grows Unexpectedly or Becomes Full on SQL Server

http://support.microsoft.com/kb/317375

It will largely depend on how much memory you would like to give to Node-2. From the settings above, it seems that you have awe enabled on instance 1 and...

How are you performing your restore ? Can you please post the scripts ?

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