As far as I know you can set it to the whole drive size (there might be like a few mb reserved though). If you're using windows XP it will tell you the maximum amount of free space available on the partition though, so you can just set it to the max amount available.
Well, a quick read through this thread may be of interest, even though not directly related to your question there is some good info in here and some think that putting the VM file on a separate partition won't improve perfomance at all.
Anyway, about leaving some % of the drive free, if it is a drive specifically for virtual memory then I see no real reason to, as it won't need to be defragged or anything. But I have no conclusive proof of this, hopefully someone will come along and enlighten us...
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