As is general rule, it is recommendet to have a swap size 2x your RAM size (in your case 1 GB). But if you don't need the space of your second HD, you may use all of it as swap space.
Installing lilo in the mbr isn't dangerous in any way.
If you later have the need to reinstall Windows
, the mbr will be written anew during the installation. Or simply boot with a DOS/Windows boot disk and type:
fdisk /MBR