to be honest, the root of the problem is that your system partition is far too small.
and to make matters worse, with only 35MB remaining you may find it difficult to uninstall aplications! as when they uninstall they'll inflate a compressed installer file left on the C drive!
I think there are realistically four options open to you.
1, get a new disk and start again, put in a new disk and install windows in that drive, when you're finished use your existing disk for data.
2, move all the data off your existing disk onto a spare, (perhaps another computer or a memory stick, lots of floppy disks, a bunch of CDs/DVDs etc and start again, installing windows on a larger partition.
3, remove enough space to install a tool like partition magic, and use that to resize your drives.
4, clear enough space to remove some programs, and then reinstall the programs pointing the install directory to the other drive that I can see you have from the screen shot.
the first two options should be fairly easy to do, the last too may require a little ingenious thinking, and risk taking.
it's not something that I'd recommend people to do *most* of the time, but in this case I think you're going to have to start deleting the 'useless stuff' from your disk.
(and you should only have to do this if you find that you can't uninstall programs due to the space issues).
start by clearing your temporary internet files
and if there is still not enough space:
right click on your "my computer" Icon and select properties, go to the system restore tab and select the C drive, press the settings button and turn down the amount of space dedicated to keeping system restore profiles.
or simply check the box that says "turn off system restore on all drives"
and if there is still not enough space:
try moving documents from your desktop to your other drive/partition
and if there is still not enough space:
then delete any profiles that aren't being used, from the c:\document and settings folder
and if there is still not enough space:
go into the windows folder and start deleting things.
*safe* things to remove are as follows. (note this will affect the ability to uninstall windows updates)
any text file with the following name types
KBXXXXXX.log (where XXXXXX is a six digit number)
QXXXXXX.log
and the hidden folders with the names that are like
$NtUninstallKBxxxxxx$ (again where xxxxxx is a six digit number).
then that should give you enough space to uninstall some programs. and move them to your other drive.