1) Your entire disk image (except files that have been deleted and updated) is actually contained inside the c:\zipmagic.wim file. So no, it is not advisable to move this to another disk. For example, if you used an SD disk for this purpose, disk reads would get exceptionally slow; whereas at present I don't think you notice any difference from the compression.
Note that you are also free to delete the WIM file on the Undo Disk. When you use an Undo Disk, it protects you from accidental power loss or other unexpected failures; it also serves as a backup if you ever want to refresh your system using that saved WIM image. This WIM is identical to the WIM file you have on your disk (even as you change the contents of your disk later on, the WIM does not get updated automatically); so this means that you can delete it safely once processing is complete. Should you ever need to reclaim it, you can just copy it over from your C: drive - as long as there's no mechanical defects with drive C:, this will always work (even while Windows is running).
2) I suppose I have already answered this question above. You don't actually need an Undo Disk the first time you use DoubleSpace, because as DoubleSpace works the drive, it will automatically delete each file it adds to the WIM; and since the WIM is compressed, you'll never run out of space with this approach. However, because files are being deleted from disk before the entire WIM has already been built successfully, if you accidentally lose power during the operation, this means your system may be inoperative. This is why using an Undo Disk is recommended: Since the WIM is created on an external disk, even if you lose power before its ready, there's no consequence to your main system. Even if you lose power after its ready, you can always restart the process with the WIM on your Undo Disk, so there is virtually no risk to your data when you use the Undo Disk option.
Of course, when you are recompressing a disk which was compressed before, an Undo Disk now becomes mandatory: This is because sufficient space cannot be guaranteed for compression to work on-the-fly as in the first-time compression scenario. You could potentially end up with two very large WIM's on disk, containing virtually identical data - and your disk would almost certainly not have enough room to accommodate two images of itself.
Now, why do you need a recompress option? There's many reasons I could think of:
a) To change your compression strength
b) To recompress new files you have added to disk (not automatic with WIMBoot technology)
c) To compress files you have updated on disk (not automatic with WIMBoot technology)
d) To recover space from files inside the WIM that you have since deleted from disk (not automatic with WIMBoot technology)
While DoubleSpace also invokes DriveSpace to use NTFS compression (which automatically recovers space from deleted files, and dynamically recompresses any new/updated files) on your Excluded Folders, as far as the files inside the master WIM image are concerned, they are set in stone. This results in a WIMBoot "Space Bleed" problem as has been described here: http://forum.tabletpcreview.com/threads ... ion.65995/
. This space bleed can get as severe as WIMBoot compression falling substantially behind NTFS compression - despite being actually far superior in data compression technology itself!
DoubleSpace solves this problem by offering drive recompression, and also offering customizable folder exclusions for folders which are frequently updated on your PC. Using NTFS compression results in the best possible space savings on frequently updated folders (its best to never include such folders inside a WIM file at all).
In this way, DoubleSpace and DriveSpace work together to maximize your available free disk space; combining the best technologies Microsoft has to offer, in a user-friendly and one-click package.
PS: The maximize issue seems to occur only on some very limited range of tablets, it is cosmetic only and has no harmful side effects.