I suspect the loss in storage capacity comes down to the average size of files you are planning to store. If you are filling the partition up with 700 MB ISO images then the loss in storage capacity will be negligible; if the drive is going to be full of files substantially smaller than the cluster size, then you will lose more storage capacity. The other concerns are the need for defragmenting and the possibility of data loss, though fragmentation is probably also a negligible concern on such a large drive. Not sure about performance.

This system will as far as I know be a typical gaming rig. So I could for instance use a small partition < 8GB for the OS and use one or two large partitions for installing mostly games. I guess it depends on how those games will utilize the filesystem, which may differ from game to game. For partitions larger than 32GB each folder and all files smaller than 4K would take up 8 times the space of same files in an 8GB partition. I was curious if this typically would make any practical difference, so that I would regret using the large partitions after a while seeing storage eaten away at a noticeably quicker pace. One could also as a middle way use the 16GB or 32GB limits to somewhat keep down the number of partitions and stay at 8K or 16K clusters respectively.

While writing this I went to the microsoft support page and found this:

"On the typical hard disk partition, the average amount of space that is lost in this manner can be calculated by using the equation (cluster size)/2 * (number of files)."
https://support.microsoft.com/en-us/kb/140365

Doing a quick check with one of my other systems gave the following.

Drive size: 21.9 GB, (Dedicated to games, no OS)
Three partitions at 7.3 GB each (cluster size 4Kb)
34 games installed, totally ca 13.3 GB
Number of files and folders 25323

Very big spread here, from Tomb Raider II with only three files in one folder, to Dark Omen with 6065 files in 137 folders.
2Kb * 25323 is approximately 500 MB lost space at this cluster size.

If I were using the whole drive as one partition the cluster sixe would be 16Kb, hence I would then be losing 4 times as much, around 2 GB and the 34 games would have taken up close to 15 GB.
With a partition larger than 32GB I would lose above 4GB and the same games would be close to 17 GB.

If I don't miscalculated, then typical game installs would take up 25% more space on a partition larger than 32 GB in comparison with the partition < 8GB, while a partition kept between 16-32GB only would lose around 11% against the smallest partition.

So for this 160 GB drive for instance, I'll make a 7 GB OS partition and five partitions around 30 GB each for the best balance. I just wanted to get an approximate picture of the numbers.

Storage efficiency probably isn't a big deal with a drive that size, but if you want to be efficient then you could make a smaller partition for games that have small files, and a large partition with a large cluster size for games that have most of their data contained in a small number of giant files. The games that eat most of your disk space will be CDROM based and I imagine their structure will usually fall into the latter category. I might be wrong in that assumption though.

i usually limit fat32 partitions under 16GB, and i tend to use large cluster size to reduce the amount of clusters, the resulting loss of space is negligible for such a large partition.
and yes, i divide the hard drive into many partitions for different type of files.

I'm not to worried about wasted space, more about a file system that works so I know which drive has what. Maybe It'll give you a few ideas?

Usually my partitions are something like

OS
Games
ISO's (maybe)
Dump
Rebuild
Data (maybe)
2nd OS (maybe)

Dump is basically a big temp folder, keeps the rest of the system clean
ISO's are for games that I cant/don't want to no-cd crack. This way I can delete an ISO (AKA "eject the CD") but leave the installed game untouched
Rebuild is where I keep drivers, DOS or Win Cab files, Programs, depending on how much space I have. at the very least drivers as its nice to have a backup
Data is for pics, music, etc, more for my every day PC's
I also like putting the 2nd OS on the final partition, I know its a bit slower but doesn't mess up the drive letters as usually it'll be NTFS where the rest are FAT 16 or 32

Its possible to have 160GB FAT32 with 4K cluster size on win98se (after patching the esdi_506.pdr so it would use LBA32*) properly.
I knew because i've done the same with 240GB partition.

*32 are due limitiation of OS API infrastructure.

Theres problem associated with very large numbers of clusters (not to be confused with cluster's size):
Microsoft Scandisk & Defrag refuse to works if the cluster numbers exceeded certain arbitary number.

I usually also split up the drive into several partitions.
C usually becomes an OS-only partition and D I use for programs.
E is for games and anything beyond that is for whatever I need for that particular rig.

Concerning cluster size: I usually don't care much, but have a slight preference to FAT32 as it can be accessed more easily and have a slight preference for a clustersize that speeds up the read/write operations of the drive, even if this means it might use up its storage space a bit faster.