Well, that was a wasted effort!! My hunch that the reserved space was associated with multi-mode updates was wrong.
Did the format and re-install of XP - the reserved system space is still there, quite a large chunk of it. Diskeeper shows it being twice as large as the OS files. I installed SP1 - no change. Beats me why it wasn't there in the earlier installation but insists on being there now. Also, the reserved system space on my desktop PC is far smaller than that on this laptop
I found a bit more to read. I now think that it's managed by NFTS and/or the OS and that we humans can't touch it. Once again, I think I'll just learn to live with it.
AA