i'm probably too late! anyway for anyone with a similar problem stumbling in from a search page or something -
does XP have a Disk Management utility like 2k that lets you make partitions? assuming it does, i'd keep the 20GB for the OS (actually i'd use smaller, depends on how much software you are installing) to keep fragmentation down to a minimum. ie, only install software to this partition and it should stay for the most part contiguous. make another one or two partitions and use these for storing files, downloading etcetra where fragmentation won't effect the system's performance. one 60GB partition would be horrible if you ever have to reinstall the OS because you would have to get all your stuff off this partition so it isn't at risk.
seeing as it is new, would you get away with formatting it and reinstalling the OS? win2k lets you make partitions during the install so i'm going to assume that XP lets you do this too. as Vic said, i'd say that it might be unallocated, but why does it say it is using NTFS???
if you delete the partition, the master boot record should still be intact, which means that you turn it on and it will look for an os where it thinks there is one and won't find it of course, so it won't load. but of course you can safely reinstall, and the MBR will be updated, and the OS will boot.

<tangent type="multiple small partitions"> i had games on my third partition (E: /dev/hda3) reinstalled my OS on the first partition (C: /dev/hda1) due to problems and when it was installed, the games from the previous OS install still worked with the new one! all my files were on the second partition (D: /dev/hda2) so it was no trouble to simple reinstall them for the new OS install...all without having to "backup" and files by taking them off the one disk that i had.</tangent>

edit: problem solved, but i'm gonna leave this here anyway