It's a pipe dream.
Depending on exactly how old the hardware is, 7 might not even install (much less run correctly). Finding Win7 drivers for really old hardware is nigh impossible, as well.
If you just want to toy with it, you might want to pick a nice Linux distro to put on there (I like Linux Mint).
But no, making the Windows folder smaller is not going to happen.
You could always put a bigger hard drive in there, but the old hardware is likely not worth the investment.