4GB 2.5" IDE disk is superb. OS3.0/3.1 both handle max 4GB HDD if not using special device driver and filesystem. And for partision, yes it's best not to go past 2GB as some apps will report size as negativ and refuce to do stuff correctly.
For partision strukture I'm pritty sure most will aggree with at least 2 partisions being "System" and "Work". To that usualy comes a "Games" partision. As said already, every extra partision will decrease the memory some as the partisions buffers use up memory.
OS3.0 takes up less than 5MB but then there's always a bunch of things that will have to be added to the clean install so I'd suggest something along 50MB for the System partision. No matter how much programs I install I've never managed to get past 300MB on my Work partision but that's because I always add a specific "Data" partision for all data files such as music, pictures etc. If you ain't planing on a 4th partision you should ask yourself what will you use the HDD for most... games or programs+datafiles and partision the HDD accordingly.
What to do:
1. Insert the HDD into it's drive cage in the computer.
2. Partision the HDD with HDToolbox on your install disk.
3. Install the OS using your install disk.
4. Go from there...
