Windows XP implements a new file system, built from the Windows NT based NTFS file system, but Microsoft seems to have leave the details of the new file system a mystery.

Advantages of FAT32:

FAT32 has the following enhancements:
·The root folder on a FAT32 drive is an ordinary cluster chain and can be located anywhere on the volume. For this reason, FAT32 does not restrict the number of entries in the root folder.
·FAT32 uses smaller clusters (4 KB for volumes up to 8 GB), so it allocates disk space more efficiently than FAT16. Depending on the size of your files, FAT32 creates the potential for tens and even hundreds of megabytes of additional free disk space on larger volumes compared to FAT16.
·FAT32 can automatically use the backup copy of the file allocation table instead of the default copy (with FAT16, only a disk repair tool such as Chkdsk can implement the backup).
·The boot sector is automatically backed up at a specified location on the volume, so FAT32 volumes are less susceptible to single points of failure than FAT16 volumes.
Disadvantages of FAT32

Disadvantages of FAT32 include:
·The largest FAT32 volume that Windows 2000 can format is 32 GB.
·FAT32 volumes are not directly accessible from operating systems other than Windows 95 OSR2 and Windows 98.
·If you have a startup failure, you cannot start the computer by using an MS-DOS or Windows 95 (excluding version OSR2 and later) bootable floppy disk.
·There is no built-in file system security or compression scheme with FAT32.
NTFS File System:

The version of NTFS included with Windows 2000 can take advantage of many advanced features not available by using other file systems. As such, using NTFS wherever possible is recommended to gain the maximum benefits from Windows 2000.

Advantages of NTFS:

Formatting Windows 2000 volumes with NTFS instead of FAT allows you to use advanced features that are available only on NTFS, including the following:
·NTFS is a recoverable file system. A user seldom needs to run a disk repair program on an NTFS volume. NTFS guarantees the consistency of the volume by using standard transaction logging and recovery techniques. In the event of a system failure, NTFS uses its log file and checkpoint information to automatically restore the consistency of the file system.
·NTFS supports compression on volumes, folders, and files. Files that are compressed on an NTFS volume can be read and written by any Windows-based application without first being decompressed by another program; decompression happens automatically during the file read. The file is compressed again when it is closed or saved.
·NTFS supports all Windows 2000 file system features.
·NTFS does not restrict the number of entries in the root folder.
·Windows 2000 can format volumes up to 2 terabytes with NTFS.
·NTFS manages disk space more efficiently than FAT, using smaller clusters (4 KB for volumes up to 2 terabytes).
·The boot sector is backed up to a sector at the end of the volume.
·NTFS minimizes the number of disk accesses required to find a file.
·On NTFS volumes, you can set permissions on shares, folders, and files that specify which groups and users have access, and what level of access is permitted. NTFS file and folder permissions apply to users working on the local computer and to users accessing the file over the network from a shared folder. You can also set share permissions that operate on network shares in combination with file and folder permissions.
·NTFS supports a native encryption system, EFS, that uses symmetric key encryption in conjunction with public key technology to prevent unauthorized access to file contents.
·Reparse points enable new features such as volume mount points.
·Disk quotas can be set to limit the amount of space users can consume.
·NTFS uses a change journal to track changes made to files.
·NTFS supports distributed link tracking to maintain the integrity of shortcuts and OLE links.
·NTFS supports sparse files so that very large files can be written to disk while requiring only a small amount of storage space.
Disadvantages of NTFS

While NTFS is recommended for most Windows 2000 users, it is not appropriate in all circumstances. Disadvantages of NTFS include:
· NTFS volumes are not accessible from MS-DOS, Windows 95, or Windows 98. The advanced features of the version of NTFS included with Windows 2000 are not available in Windows NT.
· For very small volumes that contain mostly small files, the overhead of managing NTFS can cause a slight performance drop in comparison to FAT.