The partitions are totally independent, from Windows point of view. You can reformat partition C without destroying D or E (I'll call E the partition in your 2nd storage-only drive).
What I would do is to reformat partition C (make sure there is nothing there that you will want or need in the future), and then ask the WinXP intall CD to install it in C: It's supposed to be easy to do this.
Note that D is not a partition of the C drive. D is a partition that's in the same drive as C's. Technically, C is a primary partition and D is an extended partition, but, as I said before, this is irrelevant because they are independent. Primary partitions (most of the times) can have a boot sector while extended ones can't.
So, do not repartition anything. Just reformat C, and only C, and then install WinXP in C. D and E will stay untouched.
Anyway, it's always frightening doing such things so, if possible (and I know that it most probably is not possible), backup at least the most important stuff from D. You don't have to worry about E, as long as you don't mess with the letters when formatting and installing WinXP.