No, you do not have that granularity using the inbuilt WHS2011 backup - all backups go to a .vhd file on the backup HDD. These backups are incremental and are "pruned" when the backup drive fills up - the maximum you can backup is 2TB. You can of course
use SyncToy, SyncBack etc. if the inbuilt tools do not provide what you want.
Backups can be done to both internal & external drives although externals are recommended as they can be rotated offsite for data integrity from unexpected circumstances - fire, theft etc.
OS (and the data store on your first HDD, normally D:) is restored from a Sever backup by booting from the installation DVD and following the restore server option.
Phil P.S. If you find my comment helpful or if it answers your question, please mark it as such.