Windows 7: Reserved partition

My degrag report shows system reserved partition is 4% fragmented, Is it safe if i defragment it?

You can defrag at any time. Too frequent defrag can cause problem. It is suggested that you wait until 10%. There is no reason that you cannot defrag every few months, however.
Defrag is necessary with frequent intalls or uninstalls.

I can't see why it would get any worse than 4% though, since you can't install or uninstall on that partition (it's invisible on my rig), and the system only reads from it to boot into Windows (no write operations that I'm aware of).

I would leave the 100MB system reserved partition alone. The OS utilizes it and its %utilization will vary. In my case it is nominally 30% utilization. If the %utilization exceeds 50% then imaging can become a problem and you need to take action. Apart from this I would let the OS deal with it.