At Your Own Risk
You can use a tool like BootIt NG to shrink the C: drive, creating unallocated space on your physical hard drive. You can then create an extended partition using that unallocated space, and create logical drives within the extended partition. You will need to determine the number of logical drives and the minimum amount of space you'll require for each new logical drive based on your existing XP installation and applications, and the data files and types you have accumulated. Once you have the extended partition divided into logical drives, you can proceed with the steps that follow.
Microsoft Help and Support presents all the pertinent instructions, including how to change the default location of the Documents and Settings folder during installation, and of course, all the warnings. By all means, read it through very carefully before deciding on or attempting the following procedures.
My instruction set is for moving folders around in an existing installation of XP. I offer no guarantees, either. Proceed at your own risk. I will say, however, that I have been operating my custom desktop and my Dell D800 laptop this way for years with no difficulties. Your mileage may vary.
Following is the instruction set from Microsoft for moving the entire Documents and Settings folder within an existing XP installation. Keep in mind that first you must COPY the contents of the existing Documents and Settings folder to the new location, and this copy procedure requires two separate steps. You must first only create a copy of the Documents and Settings folder in the new partition in order for the original in the default location to be available to Windows when you logoff and then logon again as a different administrator.