"Per your advice, though, I would make a C: and a D: and put the applications and data on the "new" D:, right?"
Exactly, this type of setup is pretty routine for me now. Having a pretty addictive gaming habit and fast burn out rate, seems that I'm wiping out my Windows 3 times a year or so due to all the junk I end up with on my system

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So I'll keep all my applications and data on the "D" drive (along with drivers for my hardware). Then everytime I rebuild my machine, I just wipe out the C partition to make a clean slate and reinstall Windows over again. Then just a matter of reloading drivers and what not to get it back into shape.