I always used a separate partition for my OS (now a whole drive since Vista takes pretty much all the space on my old 36GB Raptor). However, I don't put just the OS on the partition, I also install "basic workstation stuff" like AV, firewall, Office, Firefox, Pidgin, ... This partition I always Ghost/Backup so in case of any trouble I can restore and have a perfectly usable system running in about 1hr. All my data and non-essential programs I install on other partitions/drives. This is a habit I took when I was in school ... no time to waste when you have term-papers to write 😉.
Moreover, as ram1009 said, Windows tend to screw itself up over time and the "Repair" option is nothing useful (used it once and it didn't even work). If you put everything on a single partition, then you actually have to backup all your stuff when you want to reinstall the OS. I find that much more troublesome than the actual trouble of partitioning the drive in the first place.