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).
System Manufacturer/Model Number Custom-build to order (no brand) OS Windows 7 32-bit CPU Intel Q8300 Core 2 Quad (2.50GHz x 4) Motherboard ASRock G31M-VS Memory 4GB Graphics Card Intel G33 Express (Integrated) Sound Card Realtek (Integrated) Monitor(s) Displays AOC 831W 19-inch LCD Screen Resolution 1366 x 768
Keyboard Generic PS2 Mouse Microsoft Wireless 3000 PSU Octigen 500W Dual Fan Case Octigen Tower Cooling 2 x case fans Hard Drives Maxtor 500GB x 1 Internet Speed 2Mbit
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.