I'm not Hard Drive expert and if I did understood you correctly from your post I believe your hard drive is organized as basic disk and not dynamic one.
that mean your HD has only MBR and partitions and not LDM databes included as dynamic one does have.
so if we suppose u have basic disk then just make shore that windows 7 doesn't have an extra so called "system reserved " partition which is about 32MB size and it is created automatically on hard drives with no partitions while installing windows (vista,XP and 7 as well).
if u do have such partition make shore you don't delete it (which is similar manner as with LDM on dynamic disks)... in short therm if you delete "system reserved" partition your windows will never boot again unless you recover it with DVD or what ever recovery metod (that mean if you recover it than backtrack will not boot then cos MBR will be replaced in that case you'll have to reinstall grub loader)
to answer your question if you wnat to install side by side, just make shore you don't delete "system reserved" partition FOR NOW (if any),
boot up backtrack and in installation dialog window select "manually create partitions"(or however is called) (it's last option in that window)...
on next window screen you will see partition table. (problem is that you MAY NOT shrink windows partition from that dialog (OR ANY OTHER LINUX TOOL) cos that will screw up you windows installation (if you don't know what ur doing).
rather boot into your windows and shrink partition 'C' from there (in computer management console)...that will make shure that windows still work fine after partition has been edited, by the way look for other partitions like unused one, system reserved etc and decide which one you will use for backtrack (of course not system reserved LEAVE IT IF IT IS THERE).
when you've done with shrinking from windows return to your backtrack installation and create ext 3 or ex4 partition from free disk space (leave system reserved if any and windows parition)