Firstly, let's clear up the four-partition thing.
An MBR disk can have at most four primary partitions. That's all. So to get round this, "Extended" partitions were born. An Extended partition is a container, which takes up one of your primary partition slots. Inside Extended partitions you can put logical partitions - and in this manner, you can have more than four partitions on an MBR disk. In your layout above, I can see your disk has space for two more primary partitions.
166GB is a lot of space for linux. It's currently, in fact, more space than Windows or any distribution of linux will require - I think Windows is pushing the 20G envelope with recent versions, and while linux distributions vary the average is less than that.
For a basic installation, if this is your first time, I'd recommend just keeping everything in the one partition. But it's not clear what manual options you're trying to use to install linux here. You're probably going to need to tell it specifically to install into that final partition, and to use only that partition, to avoid boot problems and damaging your Windows installation.