updating to XP bring troubles

update from NT to win XP. always have "low disk space in C:" warning. I check WINNT directory in XP system of my computer, it takes 1.3 GB disk space. If I installed XP from scratch instead of updating from NT, would it take less disk space?
I partitioned hard disk into C, D, and E. is it possible to merge C and E without reinstall OS?
my computer's also running very slow, I think it is because of small memory (128MB). So don't believe Microsoft and install XP on a computer like mine.