There are several good reasons to keep using Fat32, even on a winxp system, I've found that out the hard way. Also, some older proggies refuse to work on NTFS but work fine on Fat32.
Anyway, XP will not format any drive larger than 32 GB as FAT32, it forces you to use NTFS v2. The way to do it is to make a windows 98 boot disk, then boot from the floppy, run fdisk, create a FAT32 partition, and then format the drive accordingly. Once you've done that, you can install XP on that drive, or use the drive with XP in any way you like.
Also, make sure you download the updated FDISK.EXE file (google for it). If you use the older one, it will not 'see' the size of the drive properly. You can still fdisk it, but it won't see the size correctly in the fdisk utility.
You can also use something like Partition Magic to do the trick for you.....