Partition

Yes
either install the drive in another NT box or install another drive in the computer, then install NT onto the new drive. Once it is running format the drive, don't go any bigger than what you suggested, actually I think 7.8 is the biggest you can go. Once it is formatted shutdown remove the drive with the OS and then install NT to the drive you formatted.

Hope that helps

8 GB would be the maximum without 3rd party software, but in order to get to 8 GB, you need to install WinNT Service Pack 3 or greater.

The WinNT format/install from the original cd will only go to 4 GB maximum, because there's no service pack included on the install cd. The option pack also requires Service Pack 3 at minimum.

Yes there is. Install NT 4.0 Server in 4 GB or whatever partition you have (leave the space as unpartitioned). install Service pack6a. Resboot & install Partition Magic. It will present you with a GUI manner to increase your partition space.
Akash

Yes, there is.
Install Windows on a normal partition, 2 Gbytes, once it is ready then build the second partition with 7 or 8 Gbytes. Now Run setup again but install Windows on this new partition which will be d:
Once this is ready then you can destroy your first small partition. That way you will have your system running on a bigger partition.
It has its good things and bad things about it. The good things is that you will have everything on only one partition. The bad thing is that if for whatever reason your windows gets corrupted then you can try to install it back but it won't boot. The reason is because Windows NT 4.0 its kernel its built to work on FAT16 which only allows you to work with hard disks up to 2.0 Gbytes, so is it worth it to install it in a big partition?, It is up to you.
But I have another Idea that could help you better.
Install Windows NT 4.0 on its 2.0 Gbyte partition, if you have to reinstall it won't be any problem, then build the second partition as bigas you want 7 or 8 whatever your space is and install all the applications on this partition, so you will have space enough on both partitions to work with.
I Hope it helps,
@lberto