Are you saying that your existing XP is running on FAT32? Otherwise
your question (as written) doesn't make sense.
Vista won't install on FAT32 (or so others here have posted) so you
can't upgrade XP to Vista on FAT32. If you have enough free space
you could shrink the FAT32 and create a new NTFS for Vista in the
space you freed up. That should be easy enough to do.
You can also CONVERT your XP file system from FAT32 to NTFS and not
lose your data. I've done this many times and haven't lost anything
yet. In fact if you switch on show details, you see a real time
display of all your files being worked on as XP makes the change file
by file.
Why would anybody want to switch to NTFS (New Type File System)
1. less prone to corruption than FAT32
2. self repairing (to some extend)
3. newer, more robost
4. handles larger file sizes (limited by your BIOS, drives)
I don't have a XP box handy right now. I think it walks you through
the steps in help. How long it takes depends on the size of your hard
drive and how filled it is. Will take minutes, could take hours. Once
it starts do NOT touch, just wait and pray the power don't go out if
you aren't using a UPS.