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Originally Posted by xepherys
Window 2000 has pretty easy hardware requirements to fill (not much tougher than ME), should be found pretty cheap, and works much better. I also believe that 2000 has NTFS support.
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Seconding the 2k recommendation. Being built on the NT kernel, 2000 is native NTFS. It will read FAT32, but the 9x based Windows versions are incapable of working with NTFS natively.
Basically, if you're running FAT32 on your ME system, you're better off running FAT32 on your external drive as well. This is the solution that will cause you the least amount of headaches. Seeing as how you're unlikely to encounter an NT 4.0 install these days (I haven't seen one in years) and 2000 and XP both read FAT32, that's the file system that will provide the greatest amount of compatibility. The 4 GiB limit on file sizes might cause issues if you're working with dvd rips or something of that nature, but even then it's possible to work around it.