For 40GB and less, I recommend FAT32. It will run faster.
You have a 60GB drive, I personally would only format about 4-6GB for XP and partition the rest for DATA or BACKUP, and format them as NTFS.
Something like . . .
4-6GB Primary partition for XP (FAT32)
?GB Extended/Logical partiton for DATA and/or BACKUP (NTFS)
You will find that if you only partition a small amount for the OS and leave the rest for other stuff, it helps out tremendously in case you need to reinstall XP (like that ever happens) and you won't have to worry about recovering those precious downloads or files that you want to keep.
Do a search of TechIMO and you'll find a LOT of info about NTFS vs. FAT32
BTW, this is my 3501sth . . .