1. No. Get a bigger one for My Documents & backups.
2. It WAS a good practice cuz harddisks were more expensive then.
5. Yes, but a misconception about Vista is that it's the same as XP. It ain't. Vista has MUCH better fail-safe. Say, the disk is unbootable. Drop in the Vista disk & do repair install. Or if you know what you're doing, go to recovery console & hack the files/registry. In most cases, you'll lose nothing other than the files you deleted.
BTW, go to start, Control Panel\Administrative Tools\Computer Management\disk Management for managing the harddisk. You can even partition the drive. Restart may be necessary.