To be fair, I would use a seperate drive with a single partition
configuration (NTFS of course) and from there on a folder to contain the
cd/dvd image files etc - that way, as I see it, you gain a small performance
boost in read/write times by having the cd/dvd file cache on a seperate drive
(also having that drive on a seperate IDE channel will give extra
performance) from the actual system installation its self.
To add to that i'd also configure your User Shell Folders to be on a
seperate drive i.e. Temporary Internet Files, Cookies, Favorites and so on as
required - not only does this possibly eliminate the need to backup data from
the system drive (For the folders listed in the registry key location -
HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Explorer\User
Shell Folders - Only change registry keys if you know and understand the
potential damage this can do to you windows installation), (If configured
properly the more important of these folders i.e. Favorites, My Documents and
its sub folders will be on a seperate drive, thus if your windows
installation fails to the extent a re-install is required, the data in those
folders is ready to be accessed from the new installation or from another
machine) although physical backups to cd/dvd or other media of choice is
always adviseable.
As a final addition i would also setup the pagefile for the windows
installation to be on another physical drive preferably again on a seperate
IDE channel from that of you windows installation.