Been a while since i did this, hopefully i remember it right...
(1) The first partitition (most of the card's space) should be formatted as FAT32 using (say) windows (or i guess minitool). This is where your music/photos/data etc will go (as normal).
(2) The second partition (i would recommend about 512MB tops, any more would probably be a waste unless youre gonna install *thousands* of apps) should be formatted as ext2 (i dont recommend ext3 or ext4) using GParted. This is where your apps will go.
(3) It's important to get the order of the partitions correct, the first partition MUST be the fat32 one, or the phone and your PC wont recognise it. The second ext2 partition should probably be invisible to your PC.
Sony Ericsson Xperia Arc : GiffGaff : UK