Windows XP will, by default, use NTFS when installing, but you can also use FAT32.
Using FAT32 over NTFS is not usually recommended as NTFS has many features that are not present in FAT32.
Ye Olde List of Stuff:
- NTFS supports File Encryption (in XP Professional), FAT32 does not
- NTFS supports File Compression, FAT32 does not
- NTFS has File Permissions, FAT32 does not
- In FAT32 the maximum volume size is 32GB (there's a patch for larger drives); NTFS supports up to 16TB.
- FAT32 is much more prone to errors than NTFS
However, if you have a multiboot setup with XP and Windows 98 then you may want to use FAT32. This would allow the 98 installation access to the XP partition. Windows 98/M E cannot access an NTFS drive
If you choose FAT32 and later decide to switch, you can convert from FAT32 to NTFS without losing any data; you cannot convert NTFS to FAT32, though.
So, nless you have a specific need for FAT32, I'd say go with NTFS.
As for your thumb drive, FAT32 (or, sometimes, simply FAT) is the standard.[/b][/color]