Partition Assistant Standard Edition (FREEWARE) can well shrink system partition to meet your needs. The following is instance to shrink volume the C: drive from 35.93GB to 20GB.
You can launch the Partition Assistant as administrator privilege. In order to shrink volume safely, we suggest you first close all other programs before launching the software.
When shrink volume C: to a proper size, please remember clicking the Apply (in toolbar) or press Ctrl + Enter, then will popup the dialog box, you need to click the Proceed button to apply the operation to physical disk.
Now, you can create a new partition in the unallocated disk space (15.93GB) to install dual-boot with Windows XP. By the example, you will enjoy that Partition Assistant can completely make up for the shortage of "Shrink Volume" in Windows 7 Disk Management.
In summary, shrinking volume is a advanced repartition operation, you need to choose a appropriate software to do this. Professional Partition Assistant can shrink volume for Windows XP/Vista/Windows 7 etc.