I currently run something like your desired setup. Heres what I did to get it running:
I have a 30 gig disk and I partitioned it like so:
- 12 Gigs for NTFS Windows 2000 Pro
- 6 Gigs for Debian Linux ( / or root partition )
- 512 Megs for Linux Swap partition ( type 82 )
- 5 Gigs for Debian Linux ( /home partition )
- I left unpartitioned space in case of emergency or boredom
The reason for the multiple partitions is because it is really handy to have seperate partitions when the files on the partitions have little to do with each other.
In linux the files in the root partition should be mainly concerned with running your system, and very rarely should a normal user be manipulating them.
It is a good idea for users to use disk space in their home drives much like windows users My Documents folder, instead of littering the root filesystem with data. This seperation allows you to do fun things like reinstall the OS without changing the users data.
Lastly you should have a swap partition for linux to use if not I believe /tmp is devoted partially to swap ( I am not 100% on that )
Ok here is the fun stuff:
I choose to install windows first and then linux but in previous cases I have done it the other way round. One thing though, I like to use linux file system tools over the windows provided ones, in particular, I prefer linux's fdisk utility for all my partitioning, thats just me many others want a visual interface into their disk setup.
A good way to make sure that nothing funky happens is let the installers do their job. I would install windows first, but make sure you leave enough unpartitioned space for your linux installation. Once the windows install is finished its time to install my favorite OS. During the install process most distro's will either let you partition the drive yourself or they will provide an automated way to partition them. I always choose the manual partition using old text based fdisk but I that is only my own preference. Either way works what you want is a set of seperate partitions on your disk one ( or more ) for windows and I would recommend at least 3 for linux one for "/", one for swap and one for "/home/".
The part that is a little mystifying is the boot loader. To boot your OS you have to first find it so it can be loaded. A couple programs in linux do this one older less flexible one is lilo and a more flexible ( and complex ) one is grub. Both of these programs do the same job, the install a little map in the Master Boot Record (MBR) of your primary harddrive that describes the different OS's at each partition. Your BIOS comes along read the first sectors runs the code in the MBR (lilo or grub) and in most cases you will see a menu with the list of different OS's you have installed into the different partitions. If you want to change how this initial menu looks or works you need to edit the config files for your specific boot loader.
I think thats a pretty good start.
As for your question about formatting the c: drive, if you need to then go ahead, since the other OS lives on a seperate partition a format will not touch the data.
I hope that helps
Ed