Many thanks for all your help and suggestions. I downloaded the 32 bit version, just to see. Well, worked a treat - I could extract the iso to my 4Gb partition then run the setup file without error.
So, I had a re-think about the 64 bit version, and while I don't like to give up when there's a problem to solve, I decided that as most applications I'll install are 32 bit, I'll go with the 32 bit version of Windows 7.
All installed fine (And very, very quick from the hdd!). very impressed. Don't think I'll ever go back to my XP install now!
One thing I didn't do was see if I could boot the 4Gb partition - I just ran the setup file from within XP. Would be interesting to see what happens.