Backup/Rescue CD Set
The preinstalled WinXP on most modern Thinkpads comes with a software to create rescue discs. It can be found in the "Access IBM" section of the Windows menu. I recommend to create a set of rescue discs before you repartition the drive. When you create the rescue discs, use a CD-R for the first volume (it's only 280 Megs) and then DVD-R. Otherwise you will end up with seven CD-Rs. (IBM is said to offer shipment of a pack of rescue disks if you call the support hotline.)
The copy of Windows that came with your machine cannot be legally transferred to any other machine. Leave the license sticker intact for when the machine is sold, or if you just have to dual boot.
Resizing your Windows Partition
If you want to keep your WinXP partition and you do not want to shell out lots of money for PartitionMagic, you can use ntfsresize. I recommend booting Kanotix or Knoppix, getting it online and using the latest version to be found at the ntfsresize link because the CD linuxes tend to come with slightly out-dated versions. Be sure not to forget to resize your Windows partition (e.g. with cfdisk) AFTER having resized ntfs and TAKE CARE not to make the partition smaller than you made the ntfs. If you like it safe and smooth you can also take a look at the program "qtparted" which reportedly takes care of ntfsresize and partition table changing in one go and allows you to adjust partition sizes in a GUI. But I have not tested this software personally.