I like Red Hat 9 myself but I'm a little more experienced now where I really don't need Madrake to do everything for me anymore. Mandrake is best for first time users imho.
As for file systems go with fat32 since it's supported out of the box so to speak. Safest way to go.
Mandrake will set up you'll dual boot options for you, just choose Lilo if it gives you a choice.
I take it that you have XP already installed so that's good. Windows needs to be the first OS installed since it will overwrite the mbr.
Good luck and have fun