Perfromance wise NTFS may be ever so slightly slower, but nothing you'd notice (I do recommend you disable indexing or you will suffer a performance hit in NTFS. Info here:
http://tweakxp.com/display.aspx?id=2226 then disable the indexing service).
I would recommend NTFS over FAT32, however, because FAT32 has a 4Gb file size limit. You'll probably only run into a file size limit if you work with video files though.
Only good reason to format a drive as FAT32 anymore is if you need to be able to access it from Win98 or DOS.
The reason you were never asked what format to us is because the partition was bigger than 32Gb. WinXP (and 2K) will not allow you to format in FAT32 any partition that is larger than 32Mb. This is an artificial limit however - you can format a larger FAT32 partition from a DOS boot, Win98 or using Partition Magic.