It's pretty common, I've had it on everyone phone I've owned/worked with (ok, only 4 of them, but still).
It's not a Google Play issue as such, it's an issue with the existing apps "bloating" out the phone with data. Many, many apps don't store data on the SD card, even when you move them to SD. Additionally, data which should be classed as cache (e.g. photos from Facebook) are actually bundled in with data, which contains things like settings & login data. Eventually, as the apps accumulate this rubbish, you run out of free space, just like you would a PC.
The solution, is to check through your apps, starting with the biggest, and "clear data" on them (you'll need to re-login to them, as the login data will be forgotten), until you can install the update. It sucks, and only really avoidable by having more internal storage on the device. SD cards are useless nowadays, except where you explicitly move stuff there or set it as destination for the camera.
