The Windows partitioning tools can only make blank partitions & can not format a partition for Linux. You will need to make 2 blank partitions using either the Windows Disk Management utility (Start -> Control Panel -> Administrative tools -> Computer Managment -> Disk Management) or use qtparted inside Knoppix. The knoppix installer will automatically start qtparted to partition the HD.
Reading the HD Install HowTo and watching a flash video is very educational & explains the need for not just 1 partition but 2 partitions.

It sounds like you have somthing similar to this:
Code:
------------------------------------------------
| hda1 boot primary NTFS 10000 (MB)            |
|----------------------------------------------|
| hda2 primary Unformatted 10000 (MB)          |
|----------------------------------------------|
You will want at a minimum something like:
Code:
------------------------------------------------
| hda1 boot primary NTFS 10000 (MB)            |
|----------------------------------------------|
| hda2 primary Unformatted 9500 (MB)           |
|----------------------------------------------|
| hda3 primary Unformatted 500 (MB)            |
|----------------------------------------------|
Where the hda2 will be formatted as a Linux partition to hold the files and hda3 will be formatted for swap.