partitioning - Create Extended partition in the midst of two primary partition

My system is a dual boot windows7 and xubuntu. Here's a screenshot of my partition table in Gparted.

Now I want to add another linux OS. I wanted to resize the /dev/sda3 and take 40GB for my new OS. But if I try to create a new partition after resizing, I am getting the error,

"It is not possible to create more than 4 primary partition."

I know that I can't create more than 4 primary partition and this looks like I'm in a corner. I created the initial partitioning from windows and didn't give much thought about Primary/extended partition.

Now my question is what should have I really done so that this problem doesn't happen? Was I supposed to create /dev/sda3 as extended partion and /dev/sda4 under it? Will that solve all the problem related to adding extra OS when needed? Or is there any other better scheme.

My second question is can I any way fix this without formatting any of the drive?

UPDATE:
Here is output of sudo fdisk -l

 Disk /dev/sda: 1000.2 GB, 1000204886016 bytes

255 heads, 63 sectors/track, 121601 cylinders, total 1953525168 sectors
Units = sectors of 1 * 512 = 512 bytes
Sector size (logical/physical): 512 bytes / 4096 bytes
I/O size (minimum/optimal): 4096 bytes / 4096 bytes
Disk identifier: 0x1a2544f4

   Device Boot      Start         End      Blocks   Id  System
/dev/sda1   *        2048      206847      102400    7  HPFS/NTFS/exFAT
/dev/sda2          206848   209928191   104860672    7  HPFS/NTFS/exFAT
/dev/sda3       209928192  1905287167   847679488    7  HPFS/NTFS/exFAT

/dev/sda4      1905289214  1953523711    24117249    5  Extended
Partition 4 does not start on physical sector boundary.
/dev/sda5      1905289216  1947305983    21008384   83  Linux
/dev/sda6      1947308032  1953523711     3107840   82  Linux swap / Solaris

If I resize /dev/sda3 to have unallocated space in the end of that partition, can I add that space to the /dev/sda4 extended partition without harming my existing xubuntu installation?

Yes, you should be able to resize your extended partition (just sda4) to include free space on either side of it (adjacent to it), after shrinking/resizing sda3.

An extended partition can hold many other partitions, it's like a container for "more than just 4" partitions. I think if you didn't already have an extended partition you would have to delete one of the 4 existing partitions first, and then create an extended partition in the free space.

But, it appears that you already have an extended partition, so you should just need to shrink one of the partitions (sda3 as you suggest) to make more free space adjacent to the extended partition (sda4), and then resize the extended partition (sda4) to include the free space, and create another partition (inside the free space, inside the extended partition). If you're not currently running linux from (or have mounted) a partition you should be able to shrink it with gparted but if it is mounted and it's something important that won't unmount you can use gparted from a live cd/dvd/usb.

Or if you're worried about windows's files and don't want to shrink it with gparted, windows should know how to shrink its own partition if it's sda3 (though windows will undoubtedly call it something different) and leave the free space to resize the extended partition with gparted.

It's hard to read but it looks like there's a /tmp partition, that sounds like a good candidate to delete if you didn't have an extended partition and still needed to delete one, and then recreate the /tmp partition, though it might require a little recofiguring of linux/ubuntu to find /tmp again.

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Almost forgot, but in the future if you wanted to avoid all this "limit of 4 partitions" nonsense you can make the first partition an extended partition using the whole disk, and create every partition as a logical partition inside the "main" extended one. I think I heard somewhere there used to be problems with dos or old windows where they had to have at least one "primary" partition, but that's probably not an issue anymore.

OR you could not use MBR (master boot record) partitioning at all, and instead use GPT (GUID Partition Table) it has a limit of 12x partitions and disk sizes up to 18EB (I don't even know what an EB is offhand, but I'm sure I don't have 18 of them ;-)