Windows XP should be formatted with NTFS. You will have less risk of data corruption, and the NTFS partition will be invisible to Windows 9X (unless you install 3rd party drivers). You don't want Windows 98 accidently accessing your XP installation. If this were my install, I would be putting together a 256MB C: drive for only the system files (FAT), a D: for Windows 98 (FAT32), and an E: for Windows XP (NTFS). I wouldn't install Windows 98 on any partition greater than 32GB, either, but it's your system and capabilities exist to install however it suits your purpose. If you use greater than 32GB, you're going to waste a tremendous amount of disk space since 32KB cluster sizes are going to be used (size < 32,768MB uses 16KB clusters). Corruption risk also increases, but I bet you will reinstall your system before that ever happens (like me!)
Also keep in mind you won't be able to format a drive greater than 32GB for fixed partitions in Windows 2000 and later using windows native partitioning tools. You'll need 3rd party partitioning tools or utilities.
Finally, FAT32 has a 4GB file size limit. If you plan on running any on-disk backups in XP or install games which utilize large asset files exceeding 4GB, they will fail to install in XP because of this limitation.
Save yourself the hassle and install XP with NTFS and limit Windows 98 to 32GB. Most of the games should all be able to install on XP anyway, and you'll have better/more complete access to Glide/DOS emulators (if this is something you're interested in). You'll have 98 around for the handful of games giving you grief. I would install all of the games on XP first, test, and then reinstall the troublemakers on 98.