Go with NTFS, or, install XP as FAT32 and then upgrade the partition to NTFS afterwards. It is pretty easy to do. As a whole, NTFS is the better way to go. The only significant compatibility problems you will have is with apps like Diskeepers' defragmenter and Partition Magic, and of course, only if they are really old versions. I believe NTFS also has what is called journaling. (though I may be mistaken). Journaling in a database system is used to keep track of all executed statements for recovery purposes. It also allows a system to do a multipass insert/update/delete. For instance, instead of just deleting something it would check the system, mark the file for deletion, save a record in the journal stating what would be deleted and what the data was, then asking the system if it was ready to delete. The system acknowledges, delete occurs and journal is marked as it being committed. If the system dies mid-stream than it back be reversed out. I suspect NTFS supports a similar feature. Either way, what is more important than Fat32 (do not run fat16!!) versus NTFS is a) making sure you have at least 256 mb ram, if not far far more, XP runs really poorly on just 256 b) loading all of the XP updates, including service pack 2 and all the updates afterwards. Failing to load the service packs IMMEDIATELY after loading XP is asking for problems. Unprotected and unfirewalled computers on the internet have been shown to be infected in one way or another within 25 minutes on average of being installed. Your best bet is to install XP offline (wire unplugged) and then plug in and install SP2 and updates. If you are behind a firewall/router this isn't quite as important. Either way, I'd go with no less than 384mb on an XP system, 512+ is obviously the right way to go. I run 1gb on my laptop and 756 on my desktop (haven't needed to upgrade it yet). RAM is cheap and will double the speed of a machine with 256 going to say, 512.