I found a very long and comprehensive guide for using Nlite to reduce the size of a Windows installation.

The guide is geared towards an Asus Eee. But it should work well on pretty much anything that has an Intel CPU in it.

A couple of tweaks to his settings will make it suitable for AMD-based systems. Just remove anything Intel-specific, and add back in anything specific to AMD, and there you go.

And if you have a multi-core or hyperthreaded CPU, leave multi-processor support in.

I also recommend slipstreaming SP3 and all the hotfixes you can. Then you don't have to run Windows Update, them, and you don't have to clean up after it either. I haven't investigated all of the whys and wherefores, but I've noticed that the more you slipstream ahead of time, the smaller your Windows directory ends up being. I have some systems at work that are constantly bursting at the seams on their system partitions. Other systems, which were built later from a copy of Windows with more stuff slipstreamed in, have a lot more breathing room.

Using the i64x.com instructions, you can pretty much count on getting a Windows XP installation under half a gig in size. That makes life with a small SSD much more bearable, since a typical installation tends to take a couple of gigs these days.

I'll add some tips of my own. Inside the Windows directory, there are some subdirectories named inf, repair, and servicepackfiles. Compress those. That'll free up some more space--at least a couple dozen megabytes in most cases.

If you're really cramped, compress the whole Windows directory. Boot time actually decreased by a couple of seconds when I did this (down to 12 seconds from about 14), but software installations slowed considerably. But for everyday operation, you could almost consider NTFS compression a performance trick. It makes sense; an SSD can sometimes saturate the bus it's connected to, so data compression lets it shove 20-50% more data through that saturated bus.

The downside is that when you install something that lives in the Windows directory, it has to not only copy the data into place, but also compress it. Installing the .NET Framework on a system with a compressed Windows directory takes a while.

A good compromise is to install pretty much everything you think you'll need on the system, then start compressing.

It's difficult to make a case for compressing the entire drive, however. Most modern data file formats are compressed--including all modern media formats and Office 2007 documents--so turning on NTFS compression on directories storing that kind of data gives no benefit, while introducing overhead.