If the problem is space then yes, the instance root should be off the system partition. With the servers we have, we store the root instance on c: and separate the main datafile, log and tempdb (if it is really necessary). Best practice is all well and good but in our case these servers are dedicated SQL Servers, it does nothing else except service SQL Server. The shared features will not grow over time as a result of natural growth and so will not become a risk as far as storage is concerned.
I would say that if a best practice should be 100% adherred to it would be the practice of keeping the main datafile and log on separate spindles.