Jim,

Personally I run XP with 8 GB system partitions (that is drive C) and even
then that is with My Documents, Desktop, Temporary Internet Files, Temp
and the major part of my swap file located on other partitions.  Whilst XP
will probably run quite happily with a 4 GB system partition I'm not so
sure about updating an existing system as I think XP needs something like
2 GB of free space on the partition to do so.  ASSuming your hard drive is
larger than 4 GB you should be able to resize your partitions using an
application such as BING (http://www.bootitng.com) which is free to use
for 30 days.  You don't have to install BING, it can be run from a floppy
(click cancel when it asks if you wish to install and enter what I think
it calls "maintenance mode"), and if you select partition maintenance will
allow you to do all sorts of wonderful things.

Upgrading to XP rather than clean installing should retain all existing
applications subject to their being XP compatible although some will need
to be uninstall and then reinstalled following the upgrade, the most
common in this group being AV applications, firewalls and CD writing
programs.

There's nothing wrong with upgrading rather than clean installing as XP is
a totally different operating system under the hood and to all intents and
purposes upgrading is no different from clean installing other than that
of course you don't have to reinstall most of your existing applications.
When you do decide to move you should find that the XP CD contains an
upgrade advisor. The XP Upgrade Advisor (UpgAdv.exe) can also be
downloaded from
http://www.microsoft.com/windowsxp/home/howtobuy/upgrading/advisor.asp but
note that this is a large program being around 32MB is size.  If you only
have a dial-up connection it might be worth looking for a magazine that
has included the Upgrade Advisor on their cover CD. The advisor will give
you a clue as to any XP drivers required that aren't on the XP CD and
programs for which you will have to obtain updates.  Some applications
will have to be uninstalled prior to upgrading after which they can often
be reinstalled although in some cases the application will first have to
be upgraded to an XP compatible version.

For a more extensive discussion of upgrading see Gary Woodruff's article
at http://www.aumha.org/win5/a/xpupgrad.htm

Once I drop off the newsgroups (I expect to drop off rather than move to
others) please feel free to e-mail me if you feel I might be able to help.