Hey Ondi,
Now, what I'm going to say is going to sound a little stupid, but you're trying to format a drive that is used to run Windows, and you're trying to format the drive from windows, which happens to be running on your drive. Do you see what I mean? Just because Windows doesn't have any open windows running, the disk is STILL running the Windows OS. So you can't run the disk formatter from Windows to format your hard disk, because Windows is the application/OS that is in use.
I'm assuming you have a copy of Windows XP CD? Then boot your machine from the CD when the CD is in the drive and have the Windows CD reformat your drive from within DOS. It's pretty simple; anyone who has built their own PC will back me up on this. If you don't have a Windows XP CD because you got a pre-built computer, then these rarely have Windows CDs shipped with them (which I think is cheating really), so you're in effect, stuck. I don't think BIOSes for Motherboards have hard disk format options in them either.
Why not use google for some answers before jumping on a forum? I got this as the "I'm feeling lucky" option for "how to format a hard disk"
http://support.microsoft.com/?kbid=313348
So go read the proper Micro$haft manual before getting all worked up!