Thanks for the input! It seems I may have left something important out..? My 160gig HD is divided into three partitions:
system/C, which was in the beginning 150GB;
'HP_recovery'/D which came with HP's XP install, 7,8GB as it's always been;
and OS_tools/E, which also came with the initial HP setup: 1,6GB, as it's always been.
So, what I did was a clean install of Win7, not upgrade. I left the partitioning as it was, and just formatted the C partition.
Bucknutty: I checked disk management, but didn't see "system reserved drive" next or anywhere close to C:.
Now, I recalled something that I once saw in XP. Not sure if it's relevant at all though. I was checking my cache folder in Adobe Premiere, and came across a folder the size of 30-40GB, which didn't show in explorer and was taking up space just like now, but in the Premiere settings panel I could delete the files in the folder. I figured it was some kind of a temp directory. Might have been under My Documents, Adobe... or program files, Common... Just checked the latter one, nothing major, checked hidden files.
Could it be solved by running the win install again and re-partitioning everything again..?