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The Defragmenter that Windows comes with is virtually worthless. If you have some extra cash lying around I'd suggest Diskeeper.
It can defrag your files in realtime meaning that you'll never have to perform a full defrag. Not only that, but it's light years ahead of the XP defrag in that it actually defrags the whole drive, not just what it wants to.
I know its not the best, but if you can free up enough disk space, it will do a pretty good job. It took my laptop from chopping up all video that it captured from my DV camera to recording it nice a smoothly.
Red showing in Windows defragger is not a good indication of \"too much fragmentation.\" Check the \"split IO\" count in perfmon compare it alongside the total IO count of the drive. You will find that, even with a very fragmented drive, fragmentation does not effect performance like everybody, including defrag vendors wants you to believe. This is mainly due to the fact that most I/O access is random not sequential. The major exception in modern OS's being large data files.