Chopper,
With disc management you can do lots of things, BUT unless you have part of your disk that is available to create a new partition then that is the limit to what you can do with XP on creating partitions.
With PM7 you can merge, delete, hide, resize and create.
Alternatively, you can backup all of your data and any downloads that you have already done, then reformat the whole of your hard disk and start installing everything afresh.
Ideally start with a 2 Gb Fat32 partition and a simple OS on this partiton to assist you if are even thinking about dual boot. (On this partition, having installed the simple OS you would then install PM7 and Bootmagic if you wish).
If you are only going for XP then a 3Gb partition will just do the job, but only if you are going to install all other programmes on a separate partition and also have a separate partition for data, downloads, internet... the list is endless, well 22 partitions normally. If you intend to have Program Files on the C then probably wiser to go for an 8Gb partition.
Having completed the install then XP will quite happily create all of your new partitions for you as you state, but will not be able to resize them without destroying them first.
If you are starting from scratch then as soon as you have installed the XP then use disc management to alter the drive paths of your CD/DVD/CDRW so that they are at the end of the alphabet, it could save a lot of grief later on.
Best wishes
Whisperer