I realize I'm posting after the fire has been put out, so to speak, but it sounds like there is still some confusion floating about. So let me try to confuse you further...
Yes, Windows 98 boot disks (or the "Startup Disk") cannot read NTFS disks. There is a small driver file you can download for free that allows bot disks (or Win98 volumes) to READ NTFS disks. You can buy the comercial version, which does both read and write, for some substancial cash. I have placed the link for it up here within the last few months, its called NTFS DOS. If you do a search you can find it, I don't have the link in front of me right now.
Speaking of searching, if you do a search on NTFS vs FAT32 you will find a LOT of posts here on the subject! While everyone has an oppinion, I'll try to sum it up here:
1) In THEROY, Fat32 offers some performance advantages over NTFS. In practice, the advantage is so small you would never notice it.
2) NTFS does offer some safety advanatages over Fat32. It is less likely to become corrupted, especially with a large drive. If it DOES become corrupted it is harder to fix, however. But from a safety standpoint, NTFS is better.
3) As was said, Windows XP will not format a Fat32 partition bigger than 32 gig. But it works fine with pre-existing Fat32 partitions larger than this (see below)
3) The best reason to to use Fat32 is if you are going to have a dual-boot (Win98 & XP for example) system. If you are not going to do this, I agree with Slack - use NTFS. He already told you how to convert. Keep in mind that the conversion is a one-way process - you can't go back from NTFS to FAT32 unless you use a third-party program.
Just as a counter point to the above, let me say that I have been running two systems with large Fat32 drives for some time with no problems. One is my recording PC, limited to Win98SE by drivers issues (no XP drivers for my sound card). It has 40, 80, and 120 gig drives in it with no issues. The other is my use-every-day Windows XP system, which has 120 and 80 gig drives. The 120 gig system drive is Fat32 - it was originally a 40 gig Fat32 drive that I "Ghosted" to a newer 120 drive, and I have never gotton arround to converting it. No problems yet (knock on wood)