You can have Git Repository totally in different folder than current Salesforce working directory.
I am using Git successfully in almost all projects. I have also written a small article at - http://shivasoft.in/blog/salesforce/salesforce-git-eclipse-egit-better-and-distributed-source-control/
Let me know if you need more information on using Git with force.com IDE.
Regards,
Jitendra Zaa