Hello, Cristalle. When you installed a second windows xp OS in the E: volume it did not alter your boot.ini file in C:\, did not install in the root of your new volume E: the files to load the OS. That is because it detected the old OS. If you check in your disk management console you will see that C: is the system drive [contains what some of us call the boot files in the root which load the system files which can be in another volume] and E: is your boot drive [which naturally is not the drive containing the files which "boot" the OS, but the files which are loaded by them... ie, your new OS].
Don't blame me, that is the way M$ uses those terms, boot and system.
And that is why Windows will not let you format C:, it knows it will not be able to start.
You marked D: as your Active partition - it contains the boot sector code which would normally load the files in its root which load Windows. But they are not there. And they cannot be in E: because it is a logical partition.
But no problem. We have to make D: your System partition.
Firstly, in an explorer window you must alter the Tools, Folder options, View settings to show Protected OS files [uncheck that option].
=Check in your E: drive for two files E:\ntldr, E:\ntdetect.com. Not there? Ok, just copy them over from C:\ to D:\. I repeat, to D:\
Next post here a copy of your boot.ini file. You can just drag it into an open notepad from C:\, else go Start, run, paste in..
control sysdm.cpl,,3 -Startup n Recovery settings, press Edit.
We will alter it to load your new OS directly from E:
Or... you can do this yourself:
Edit your boot.ini to look like this one:

[boot loader]
timeout=4
default=multi(0)disk(0)rdisk(0)partition(2)\WINDOWS
[operating systems]
multi(0)disk(0)rdisk(0)partition(2)\WINDOWS="Microsoft Windows XP Professional" /noexecute=optin /fastdetect

...note those two partition(2)....
-save it to D:\
Hide those OpSys files again.
Restart. Might work.
[Are they cats, or something?]