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It is best to have your OS on a separate partition than the rest of your data. This results in less fragmentation and ensures speedy operation of your system.
If your hard drive is large enough, then partitioning is probably a good idea for you. Common practice is to have at least three partitions: one ~8GB for the OS, one ~10GB for Documents and other personal files, and whatever is left for programs. This setup may vary depending on how you use your system; if you do video editing for example, you may wish to have one large partition just for video.
There is no right or wrong way of partitioning as it greatly depends on how you use your system. At the bare minimum (if the drive is big enough), have one partition just for the OS and have another partition just for programs.
If you have any questions on how you should partition for your situation, do not hesitate to post in the Microsoft Forum.
Additionally, this linked MSKB article has an in depth explanation on How to Partition and Format a Hard Disk in Windows XP.