You should do whatever you are comfortable with.
When you feel like you want to install a distro, I again would suggest Mandrake, the partion tool will setup your partitions nicely. I would suggest running Defrag before starting.
I would also suggest going to this Ebay
auction for a 2.5 gig hard drive, the buy it now is only $8.99 you could then intall linux on it and not have to mess with resizing your current hard drive.
Just a couple of thoughts.