I partitioned my disk - as you have. Formatted the second partition as Fat32 for Puppy - and for use as a separate data disk for Windows.May I ask how you did this?
I then installed Grub4Dos to the disk boot sector (this was long before I used the second Boot manager) and put the menu.lst on the Fat32 Partition (Grub searches for it on all attached devices which can cause interesting effects if it finds a different one first)
I then installed Frugal Puppy on the second partition and added it to the menu.lst .
I have added several other Puppies as well and keep them apart by adding to different folders.
I've also got loads of other stuff like Hiren's CD and some other tools installed on that partition and accessed through Grub.