Hi Jim,
I normally use normal Mac OS Extended format. It depends on if you want to be able to use your virtual machine with for example a Windows or Linux host running VMware Workstation. If you do want that possibility then it might be recommended to use FAT32 and use 2GB split disks for your guest.
Re. partitioning up your disk for program/data. You can do that at the guest level. I suggest to keep all files of your your virtual machine in one folder. There is absolutely no benefit of splitting it up your guest over multiple partitions at the Mac level.
If you want to split up like that, then create 2 virtual disks at guest OS level.
Aka.. in Windows 7 you see 2 virtual disks, one for apps and one for data, but at Mac OS X level you just have everything in one folder.
It keeps things simple. if you ever want to copy/backup your virtual machine to another disk, then you only have to copy that one folder.
--
Wil