While indeed you can shrink the system partition on your current boot/system drive and install Windows 7 on a new partition you create by trimming space from that partition, why bother? You can install Windows 7 to an external hard disk (eSATA only, USB won’t work[updated 5/17/09 thanks to feedback from reader Jay Visaria]) and then manipulate the boot drive order in BIOS to control which OS boots on your machine.
Leave your current boot drive order unaltered, and Vista will continue to boot as always. Change your boot order so that the Win7 boot drive is ahead of the Vista boot drive and presto! you’ll boot into Windows 7 instead of Vista. This is a great and easy way for admins to muck about with Windows 7 on familiar hardware, while avoiding potential difficulties that dual-booting from the same volume can sometimes cause. This is significantly less likely with Windows 7 and Windows Vista than other Windows versions because both of those versions use the same BCD files and software. But I’ve been bitten too many times in my Windows forays–especially into new and relatively uncharted territory–to want to put a production OS and a beta OS on the same drive.
Now that the beta is publicly available and all kinds of people want to jump on this new OS, dual-booting is bound to be an issue for many. Though there are many other ways to scratch this particular itch, I prefer the one just described because it keeps things as disjoint as possible. I’m leery enough about the Win7 beta that I turn the external drive upon which it resides on only when I want to explore its file system from Vista, or when I actually want to run Windows 7 and boot from that drive. It stays off the rest of the time.
Know of other, better methods? Please share them with me, but don’t tell me to run Win 7 in a VM, please. I already know how to do that, too!