lol.
Formatting C is fine and allowed (icon doesn't matter lol, it's not a drive where the CURRENT system is installed), also having system default as D doesn't make anything bad (programs are clever enough to use %SystemDrive% variable).
the only possible issue could be if the boot partition and bootmgr were written to C. in your case it either seems separate and hidden (Windows 7 hidden boot partition

) or on disk D.
the boot partition can be selected via Disk Management by setting "Use this drive as Active", and the system will boot from it