|You need to explain your situation a lot better than that.|
What has the USB drive got to do with it ?
You can't boot Windows from the external drive, if that's what you wanted to do.
"current hard drive ties up half of c drive space"
That doesn't make any sense.
All drive letters in Windows are assigned to logical drives, although the word logical is usually omitted.
Drive letters for (logical) drives on physical hard drives are assigned to hard drive partitions that have been prepared so that they're recognized by the operating system
C is a (logical) drive on a hard drive partition on a physical hard drive, the internal hard drive is a physical hard drive.
The (logical) C drive is not treated as being the same thing as the physical hard drive unless there is only one partition on the physical hard drive and that partition uses the entire physical hard drive's usable space.
The (logical) C drive can take up half of the physical hard drive's space, but not the other way around.
You can't delete the (logical) C drive in Windows if Windows is running from the same (logical) C drive / hard drive partition
If you want to change the size of the (logical) C drive / hard drive partition, you can't do that in Windows XP and below without losing all the data on the (logical) C drive, but you can use a third party "partition manipulation" program to do that.
E.g.the freeware Easeus Partition Master Home Edition
You can also delete the (logical) C drive / hard drive partition with a "partition manipulation" program, but you will lose all the data on it.
Or - if you're going to be installing Windows from scratch, you can boot the computer from an XP CD and delete any existing partitions on the physical hard drive and make one or more new ones.