What happens if you go to My Computer, right click on the offending drives and choose Format ...?
Do you get the option to format FAT32 then?
There is no reason I know of why you can't have as many logical FAT32 partitions as you like.
Out of curiosity is there a reason why you are hanging on to Windows 98 on your other box? You can find cheap remaindered copies of Windows 2000 (and probably cheap WinXP OEM soon) if you look around and then you can use NTFS across both systems. (I don't mean second hand copies by the way).
I don't know where you are based but here is a UK site with pretty reasonable OEM WinXP offerings ...
http://www.overclock...upid=33&catid=20 (and even Vista OEM offerings at knock down prices).
A useful tool that has saved my life a number of times is Partition Table Doctor (
http://www.ptdd.com/). You can download a free trial which will check your drive for consistency. If it finds errors and you want it to fix them you will need to buy it. I haven't needed it often but a number of times utilities like Partition Magic have left my drives screwed up and PTD has fixed the errors. One of the good things is that you can backup your partition table details when you know you have a good setup and then restore those settings if something should get broken in future. The purchased version comes in two versions - a windows app and an ISO file to burn to CDROM which is bootable and allows you to fix partitions without having to get into Windows.