What are the pros and cons?
I have an unpartitioned 250 Gb hard drive that is mainly full of Steam games, and they seem to run fine. Would I see an improvement if the drive was partitioned? How many partitions and what size? What about the cluster size?
You will probably not see an improvement just by partitioning. The only thing I have heard of as a speed benefit by partitioning, is having a relatively small boot partition, maybe with a few apps on it, so the drive heads stay in a small part of your HD and have less distance to travel. If you have a relatively full HD of games you use often, this won't help.
In performance terms, the reason to partition a drive is twofold:
a) to force certain files to reside on the outermost tracks where the transfer rates are the highest.
b) to force certain files to lie close together on the disk so as to minimize seeking between them.
If you have a set of files that are performance-critical, then placing them into their own small partition at the start of the disk can improve the speed that they can be accessed, read and written at. But it's a small improvement which you may or may not be able to feel in real life.
And you have to be careful - because if you have multiple partitions on the same drive and you frequently read files from all of them, then you may see a performance decrease as the head has to move further to seek from one partition to the next.
Besides some possible performance benefit, another big benefit of partitioning your hard drive is for ease of backup and restoring Windows in case of a problem. Example: I have my 500GB laptop drive partitioned into a 32GB partition for XP and the rest for data. I keep ALL my data on the data partition, even My Documents (possible to move it from the C: ). I can backup all the data on my drive - not software - by simply backing up all the files from the data partition. I backup the Windows partition by imaging it (I use True Image from Acronis).
If I have some problem with Windows - because I got a nasty virus for example or some sort of corruption - I can restore just the Windows partition from my backup (a relatively small backup file) and leave my data untouched. I've had to do stuff like that - and believe me, it saves tons of headaches having things partitioned that way.
A downside of partitioning is a potential waste of space, because one partition is bigger than you needed to make it and has too much free space. But the new drives are so big, who cares? You don't need to use 100% of your hard drive (and you shouldn't anyway). Nice to have some breathing room.