This is probably because your HD is larger than 32 gig. If it is larger
than 32 gig, the XP installer will not give you an option to create a FAT32
partition.
You can, however, use a Windows 9x startup floppy to create the partition
and format it. Just boot with the W9x startup floppy, and run fdisk, then
delete the "NON-DOS Partition", then create a FAT32 partition of the size
you want. Don't forget to format the partition AFTER you create it.