|There are hidden system files you are not counting.|
It is possible that you have a paging file (virtual memory) on more than one drive. If you do and the one on your C drive is of sufficient size, then you would not need another one. To see this on XP (going by memory) you can right click on My Computer, select Properties, then check each tab for your paging file/virtual memory and click 'Set'. This will show you not only the total, but the amount on all drives. You should have a paging file of between 1.5X and 2.5x the amount of memory you have installed. You have 1000MB (1GB) installed so you should have it set to between 1500MB and 2500MB but for XP you probably do not need more than 2000MB and 1500MB should work fine. Though this can be on more than one drive, it is best on one in my understanding.
You have to be a little bit crazy to keep you from going insane.