The 2GB option splits the virtual disk in to 2GB chunks. This is because FAT32 has a 2GB file size limitation. OSX can read/write FAT32, but can only read NTFS. So depending on how you plan to reansport the converted VM to you Mac, if you plan to run it from a external HD, the drive would have to be formatted FAT32 or HFS. And if FAT32, then you need the 2GB split file option. I'm assuming you're going to copy the VM to the Mac's internal HD. Then you don't need to split to 2GB, but if you ever have to manually repair the VMDK file, it's easier with split disks. (You didn't ask, but you can leave the hard disk to "growable" if you want to. You probably won't notice the difference in speed if you choose preallocated/non-growable.)

I don't know about the not booting from C. You could get this error if your machine is a dualboot system and the boot manager is not on the C: partition. If that's the case, you'll want to search the knowledgebase and forums for procedures on converting dual-boot systems.

And yes, you will have to reactivate Windows. If the copy of Windows is and OEM version that came with your system and it's a branded system (Dell, HP, etc.) then you may have problems activating. OEM copies are tied to the physical hardware and usually can't be reactivated except on the same brand hardware. If the copy is a retail version, then you should be able to reactivate ok.