System Reserved partition no longer marked as System

Solution 1:

The System volume (also known as the "Active volume") is where the boot manager (BOOTMGR) is located, which is where control goes after BIOS. The boot manager is responsible for loading the operating system.

The Boot volume (also known as the "OS volume") is where the Operating System is stored. In your case Win7.

I know. The naming is ridiculous. You use the System volume to boot and your Operating System is on your boot volume. The naming is often confused, even within Microsoft documentation.

Prior to Win7, a clean install of Windows would, by default, create a single C: volume that was both the System volume and the Boot volume. In Win7, this changed to facilitate enabling BitLocker as the boot manager can't be encrypted or you wouldn't be able to run it. So in Win7, a separate 100 MB System partition is created for BitLocker while the rest of the disk is used for the OS volume.

To answer your questions:

1 - You don't need to do anything (see 3), but there is a command line tool included in Win7 specifically designed to move BOOTMGR out of your Boot volume to a different (or new) volume and mark the other volume as Active. From an elevated cmd prompt, run

bdehdcfg -target X: merge

(where X: is your system reserved volume)

2 - Go to Start > diskmgmt.msc. From Disk Management, right-click the partition and click Change Drive Letter and Paths -> Remove -> Yes. Removing the drive letter just hides it from My Computer.

3 - Your current state is fine. You're probably wasting space with your reserved partition, but other than that there's no problem as long as you don't start randomly deleting critical boot files. You're in pretty much the same state that Windows was in by default up through Vista. The state will prevent you from enabling BitLocker on your OS drive, but the BitLocker Wizard will automatically reconfigure your drives for you to put them in the required state for BitLocker.