Linux will not install on NTFS, but Partition magic provides the option of using a Linux file format (I believe it only gives you a couple of choices Linux-wise, though). I may be wrong, but I believe I remember (from one of my Linux installs) Linux providing the option of installing onto/formatting a drive into a FAT partition (can't recall whether it's FAT32 or FAT16, wouldn't recommend either of them).
You could just create an NTFS partition and let Linux format it into your file system of choice. (Seems the easiest way to me)
EDIT: You won't really have the problem of your Linux drive being "Drive E:" as Linux uses mount points, not drive letters. That, and Windows won't be able to recognize your Linux partition (However, Linux will be able to read your Windows partition, so you could copy files over etc. to the Linux side of things, but not from Linux to Windows (If I'm understanding things correctly)).
If anyone more experienced in Linux FS's wishes to join in, you're most certainly welcome.
(doin' a bit more research into Linux file systems, I'll edit into this post anything new)