This is going to be rather complicated to explain but here goes my best attempt... I have the OS installed on the C drive. I have all of the documents mapped to a seperate but still internal E drive. I have done this with both XP and Vista and there have been no problems.
Windows 7 linked it...
access rights
aim
backups
clean install
clutter
desktop
document folder
e drive
file management
folder issues
icons
linking
personalization
publicdesktop
recycle bin
shortcuts
skype
system settings
user folders
windows 7