gxman

You'd have 3 harddrives correct (or will when you get the new one). Take out all your drives, remember what one is your C drive, hook up your new drive to it, set you new drive as slave (your C should already be master) you can do this cause your cable should have a spot for a second connection.
Now take your other 40 gig and make it master, take your CD drive make it slave. Put them on the same cable. Plug them all back in, start up your computer.
Now you will have 200 gigs of storage and still have your CD drive.
Just move data at will between them, but when you have that extra space you don't really need to.

As for doing the above mentioned ideas I wouldn't, they are just too complex, this way is much simplier and you don't have to sell one of your 40 gig drives. I actually don't follow any of the logic above.
My way assumes you do have a motherboard with 2 ide channels and cables that you can connect 2 drives to, which damn near everything has had in the last 3 or so years.
As far as partitioning, you could try with fdisk but I strongly recommend against it, espically when I saw you were considering buying Ghost to do the file transfers. (How can that guy recommend strongly a product he has no expierence using anyway.) If you were going to buy anything buy Partition Magic, it does partitions real easily, and then that will also help optimize your 120 gig drive, just divide it into smaller segments because they are more efficient. At biggest I'd recommend 4 30 gig segments.