You have a zip so you can save "some" files but given its limitations, speed and size, not the best. SCSI, FireWire, or 2nd internal ATA drive offers better speed and size.
You can upgrade or perform a "clean" install without wiping a drive (though a good idea, esp. if major upgrade or you've had crashes etc lately). Good time to partition for better use of drive space: separate partitions for different operating systems, for scratch, and a general area for most apps, documents and internet folders/files.
If planning on the OS X beta, I think that requires partitioning before or during install and a partition of 800 MB minimum, 1.2 recommended, and 1.5 GB for "full" install of LOT of optional packages (server level rather than user) or full BSD compilers and libraries. ¯r Linux install.
Drive Setup 1.9.2 (OS 9.0.4) has a Custom initialization option for a Linux setup.