Why not convert Disk1 to Basic and Clean Install Windows 7 on there to have much more space to work with?
To do this back up your data on the HD, wipe it with the convert command in Brink's tutorial, then boot the Windows 7 installer to Clean Reinstall - Factory OEM Windows 7
which steps are the same for retail.
You'd want to unplug the other HD first before doing this, set Disk1 first to boot in BIOS setup, or swap the DIsk0 data cable to it. Afterwards plug back in Disk0 to access it's data, boot it using one-time BIOS Boot menu key, or wipe it with Diskpart Clean Command
to repartition in Disk Mgmt as you please.