Well i am not so sure that this is really the Win 7 system reserved partition, it would literally be named "System Reserved" if it were, unless you renamed it that is. Must be something your laptop manufacturer creates for, i am just guessing, restore purposes or who knows what. What is the size of that partition(SYSTEM) ? The system reserved partition that Windows creates is 100 MB, unless you have changed that.
And yes it would probably be pointless to defrag the system reserved partition since it's so small and doesn't really get changed but i never heard it would cause any harm to do so. Where have you read that ?