Not to resurrect this long-dead thread, but it ended up being tops on my Google search on this topic.
I have a 120GB HD on my MacBook. When I decided to install the Boot Camp partition, I had 105GB of content on that drive. I got the partition/defrag error, and then I whitted the content down to 37GB by moving files to external drives.
With over 67% of my drive open as "free space," I could not even make a partition 5GB in size without getting an error. My project requires me to have at least 30GB of space on the Windows side.
I misplaced my original install CDs, and I needed to get this project done now (relatively), so iDefrag was my only choice. $35 is quite a chunk of change to pay for immediacy, but I had to do it.
As I sit here, iDefrag is going to town cleaning up my drive, which was terribly, awfully defragmented, worse than I ever remember seeing in my pre-OS X days. So maybe the speed bump I'll realize will be worth the $35, in addition to running XP. Boot Camp won't have an excuse not to give me my partition now, hopefully.