What is this for?

Have you tried FreeDOS? Modern drives have generous caches now 😀 So you might net even need it.

I've created a 50 gb FAT32 partition (with 4kb cluster size) on a 2.5" 500 gb SATA hard drive and made it bootable and copied all the DOS 7.1 files to it. I've also copied XP-SP3 and Windows 7 installation CD's to this partition. This is in preparation for installing XP (and maybe win-7 in the future). The drive (once I detach it from my win-98 desktop PC) will reside in a Zotac ID18 mini-PC for use as a livingroom media / internet access computer (this will replace a more noisy and heat-producting IBM thinkcenter).

After re-installing the drive into the Zotac and booting into dos, I started the XP installation (onto the FAT32 partition, because I detest NTFS but need only for large media file storage beyond 4 gb file-size). XP mentioned something about smartdrive not being loaded and suggested that the install would go faster with smartdrive running. I didn't notice that smartdrive hadn't loaded during DOS bootup.

I will probably go ahead and do the install without smartdrive if this too cumbersome an issue to solve.

Old hardware, drivers and its configuration should be asked in Marvin. This forum is for DOS games.

IIRC DOS 7.1 mem.exe can't display 1 GiB or more XMS/EMS size. It replaces all such entries with "?". But you still have proper XMS/EMS size. You can use FreeDOS version to check.
Smartdrive may fail because CD-ROM driver uses first XMS area for buffering (as the example - uide.sys).

Moved to Marvin.

You can try replacing SmartDrive with UIDE. It is an UDMA driver which is also a CD driver and does its own caching.