Microsoft's upcoming Windows 7 will have a helpful way to backup your system. One option will be to backup to a partition on your hard drive. If it's ever needed, you would insert the Windows 7 installation DVD, and then use the image you've stored to reinstall Windows from that backup. It would have all the files and settings you had as of the day you made that backup.

You would select "Create a system image" from the Backup and Restore window.

Normally, most people would either backup to a recordable DVD or an external hard drive. Prices on the latter have dropped to as low as about $80, so they really make a lot of sense. They can also be used to save large files like movies or music. But if you don't have one of the first two options, you can create a separate partition on your PC's hard drive and save the image to that. I've had very good results using Easeus Partition Manager Home Edition to create and resize partitions.

The feature doesn't let you select which partitions you want to back up; it wants to back up everything on your computer. In this case that included both the Windows 7 partition and a Windows XP partition.