Maybe I misunderstood so please clarify... Your System Dataset is going to where exactly? freenas-boot or to your pool?
If it's going to your freenas-boot then I'd recommend that it be moved back to the pool.
The easy fix here is to backup your configuration data as
@BigDave previously stated and then install from the iso FreeNAS 11.1 and then during the first bootstrap, cancel the configuration and then restore your configuration file. All should be good after that.
What it looks like is something during your upgrade to 11.1 has sucked away a lot of your capacity. I can't explain why nor any click of a button solution, all I can see if a clean install from the iso to fix it. And this actually is a fast way to recover.