I recommend using Norton Ghost and create an image of your C drive. Save this *gho file to another physical hard drive. Then using fdisk you can delete all partitions from your original physical hard drive, create a new primary partition using all the space available, format it, then restore your system from the *gho file. You will end up with one large C drive and only XP as an operating system.
This procedure would require you to install a seperate drive of course, but the benefits would be worth it. You could even get away with using the cheapest slowest drive out there because you would only be using it for a dumping area for your image file. A 10Gb drive is usually enough to hold the image of a 40Gb drive because you won't be backing up the free space, just the data.
When you're using a program like Ghost, it's always a better idea to save the image file to a totally seperate drive rather than partition in case your C drive goes down hard.