NTFS is the standard choice with XP, and is somewhat more secure and maybe
more robust. But, FAT32 has more possibilities for disaster recovery, and
is required if you plan to dual boot or network PCs with win98 or ME or
LINUX.
My own experience is that FAT32 works fine with XP on large disk, up to 120
Gig. (XP will refuse o format as FAT32 is lager than 32 Gig, but it will
use the disk if you can manually format by third-party software like
Maxblast, SeaTools, FDISK (modern version), GDISK, etc. However, not all
motherboards can handle disks greater than 32 Gig, others have a limit at
about 127 Gig.