Kim, when you say you might need to reformat it to a "larger C drive" do you mean to say that you have your drive partitioned? (ie two or more logical drives on one physical drive - usually C:\, D:\, or more) If that's the case, you can buy programs that can move the partition and make your logical C drive larger without having to reformat.
The external drive is a great idea also when you use it for backups and also stuff that takes up a lot of space, like image files.
Last suggestion -- I don't know if this applies to Vista, but in XP when you do a disk cleanup, on the Options tab there's an option to delete all restore points except the last one. These restore points take up a HUGE amount of disk space. I delete them about once a month and usually in a month accumulate about three GIGs of restore point files (they're in a hidden directory; you can't see them) Do a virus & spyware scan, a checkdisk, and then a manual restore point before you say goodbye to all your previous restore points (just in case)