I have done exactly what you are trying to do. Unfortunately you need third party software to create a partition on the "C" drive. Acronis or partition magic are excellent for this task, unfortunately they cost. If you have the software then create a partition of at least 20Gb,even better would be around 30Gb.
" How do I move half of that 78GB free space to the unallocated space so that I can create an extended drive? "
You need the software to make a faultless partition that will not damage your data. If you don't have it, you can yellow envelope me.
It's then just a simple matter of booting from the Vista disk , selecting which drive you wish to put it on, then load vista. You then install the drivers and load your programs. When the computer starts you will have the option to boot in to Vista, default, or other operating system ( XP ).