reinstall + partition

Actually you have roughly 465gb out of the advertised 500gb to work with in how two different forms of drive measurements are used one being decimal for 500gb and the other binary units of measurement used by the OS being Windows there.

With a good sized drive you can split the drive while simply custom installing all programs to a partition other then the one 7 is on isn't always advised. Once Windows sees a fresh clean install if seen later that will involve an entirely fresh system registry where most programs end up being reinstalled over despite having the files and folders from the previous install remaining.

3rd party apps that require activation can easily be effected. But that's if and when Windows is reinstalled later at some point. As far as performance gains? There are other options for boosting 7's performance in the guides found in the tutorial section.

For best utilization of a second partition using that when no other drive is present for the Windows Easy Transfer or full System Image backup of a working installation would be far more practical. You could wipe C entirely and still have all of your important files safe guarded on the D or E, F, G, secondary.

I have to agree with Theog on at least 100gb for the C primary and gregrocker for providing the guide as well. If you feel you are not confident enough for custom installations and alternative customized locations as custom tweaking Windows you will want to choose the best options.

For the more novice user the idea of incremental backups to a second good sized partition or even another drive internal or external would make more sense. While some gamers claim to gain from custom installing programs to secondaries they likely have had to reinstall Windows more often and simply know which workarounds for some of their regular programs to get those running again.

Once you have the confidence from practical experiences in installing, reinstalling, and custom installing Windows then you can opt to try out different setups to see for yourself how those will turn out. For practical adivise we simply have to point out the best options you have at this time however.

Once you get familiar with how things work and feel comfortable enough to experiment then you can go about setting up one or more custom installs to see how things go. But for pratical reasons and a good running system the steps mentioned by everyone here generally work out the best for most people.