Hi Gerard,
As far as I know, there is no way to install the .NET Framework in a folder different from the System folder.
The disk space taken by the .NET Framework installation (1.1 or 2.0) is not that big for today's standards. It is going to take about 100 MB of disk space.
One thing to notice, however, is that you can still install the .NET SDK and Visual Studio in another drive. Only the Framework must live into the system folder.