This shouldn't be difficult. I can't speak for Win7 or Ubuntu, but I have my Aspire One netbook (120GB HDD) running WinXP and Mepis linux (with a full KDE desktop). I have the drive partitioned in 4 - 30GB for XP, 10GB for Mepis, 10GB ntfs for Windows data & 60GB for main data.

The 10GB Win data partition is for those files which are only useful to Windows applications, and is a bit belt & braces. Linux reads and writes to ntfs drives with no problem, and there are free add-ons for Windows which let it read and write to Linux ext3 & ext4 drives.

As for installation, there are few problems if Windows is installed first and used to partition the drive. You say C: & D: drives, but it's probable they are partitions on a single drive. I think there are slight problems in shrinking the size of a Win7 C: partition, but they can be overcome. I understand the trick is to defragment the drive a couple of times with reboots before attempting to shrink the partition.

Most current Linux installers will recognise the Windows installation. then format the linux partition and install a bootloader which will give the choice of booting Windows or Linux. You don't need to fiddle with the BIOS (as John suggests you might). I've just added a trial advanced version to my machine, and my boot menu now has 6 choices of operating system.

Phil