Can I create a new partition in c drive when os is already installed?

I had a 40g hard drive die and I had it backed up with Paragon backup software. I can get to the backup files but when I try to restore them the program tells me it can't find the target drive. Thru some research, I'm guessing I need to create a 40g partition to restore to. Thru more research I learn that there's usually a "recovery partition" on the C drive that I could resize. Is this true?
My new hd is 160g but when I installed xp pro it seemed to install it all on one partition. Disk manager shows me no other partitions.

So, can I create a new partition on the c drive when I already have xp (and other programs/data) installed?

I also have Aconis True Image Home 2009 which I just used to create a complete backup of my current hd onto an external drive. So I should be ready to try to create the new partition in relative safety.

P4
3ghz
1g ram
win XP pro

Thanks,
John