ok well part 1...boot into 2k and defrag so everything is to the left edge
2) resize with with either ntfsresize or qtparted or gparted
http://man.linux-ntfs.org/ntfsresize.8.html
note I would still defrag b4 ntfsresize...to be safe
3)
http://puppylinux.org/wikka/HardDiskInstall has instructions based on a clean install of 2k and clean install of puppy
IMHO 160 megs will be ok with puppy
http://puppylinux.org/wikka/puppyapps
and puppy likes ext3 hd format for itself and grub
4) so you can read my signature on grub if you like as well
so its hd install using a puppy live cd after you have done some defrag and partition stuff