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Converting your E drive to NTFS would be a good idea. You can compress folders to save space, set permissions (if you need to) and have a slightly better access time.
You don't have to convert your WinXP setup during installation, just use a recent version of Partition Magic and convert from there. It's very fast and I've never run into a problem doing it.
Of course, it's always a good idea to back up important data in case you do come across any unforseen problems.
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