It depends on what OS you're planning to install. If it's Windows XP or 2000, you can simply boot from the installation disk and format the C: when prompted.
If it's Windows 98, ME etc. then you'll have to format the C: drive as you suggested (format c: at a DOS prompt) then install from there.
For partitions, I would suggest having C: for OS and OS updates, a second partition for applications and a third for data. That's what I do in any case.