Hey, you should try the Anaconda Community Edition. It's a larger download, but that's because it comes with more packages(which may be good or bad, depending on your opinion) But it by default installs into C:/Anaconda, and it allows you to change the installation directory.
As far as I can remember - yes, it will try to overwrite your Python dir, at least it did for me on my Windows machine (I backed up my original C:\Python27 before trying EPD, and then had to restore it, IIRC; there was also some mess with paths, but nothing incurable). I also tried installing EPD into its own directory, but Windows EPD package failed to run Notebook anyways (some issues with Tornado), and I was just too excited to try Notebook. Jumped to Ubuntu@EC2 and was running Notebook with EPD from it in 5 minutes.
Your mileage may vary, of course, so I'd say have a backup and give it a try - at least EPD didn't ruin anything for me. I'm pretty sure IPython Notebook on Windows machine is doable with some lib-hunting/building, since I managed to have fully functioning IPython Qt console installed and running perfectly on Win7 right now, and Notebook is just a couple additional requirements away from it.
Sorry you got those issues with the notebook, this should not have happened. The notebook is certainly supported on windows in principle, the fact that it does not within EPD for you is a bug, I apologize for that.
With the latest EPD 7.3-2, ipython notebook --pylab inline works for me on windows 7 32 bits + chrome. Feel free to contact me privately (see my HN account) if you want more help on how to get this fixed.