As far as the partitioning question, fragmentation happens to individual partitions, not the whole drive, since the areas of the drive that belong to each partition are laid out when the drive is formatted that way.
So, if you have, say, and OS partition and a data partition, and your OS partition has plenty of free space and not a lot of file traffic, but you do all kinds of stuff to your data partition and it's nearly full, then your OS partition will be unfragmented and fast, and your data partition is probably a fragmented mess. Accesses to the OS partition will be snappy, accessing things on the data partition will be relatively slow. If you're accessing both simultaneously it'll be very slow, of course, since there's only one drive doing all the work on both partitions.
As for the original question, as per Apple's documentation things will gradually defragment during use, so long as the fragmented files aren't over 20MB in size. Of course, if the disk filled up on account of a few huge files (say, an iMovie project), then it might not even be fragmented, and if it is and you delete the big project that caused the fragmentation, the OS will take care of the rest and the disk is probably fine.
Your OS partition is probalby fine for most purposes if there's at least some free space on it, since most OS files are very small and 10.3 has special speed-optimization (hot file clustering) routines for heavily used files. In truth, I haven't seen fragmentation to be much of a problem even on nearly-full drives, so long as the OS drive/partition has enough space to spare.
