IIRC, if you install XP "properly", it demands that you reformat your hard drive, so you need to back up everything you care about first. I think you can install XP on a FAT32 system and have it work (meaning that you don't have to reformat the drive), but XP won't work as well as it's designed to.

The big problem, at least as it was explained to me, with Win9X is the FAT32 file system; apparently, it's inherently unstable, which is what leads to crashes and eventual re-installing. So, that needs to go away, and that's the big advantage of XP.

I'd do the XP upgrade, except for the fact that there are a few programs I regularly use that aren't XP compatible and can't be inexpensively replaced...