Probably too late. But still:

Basically, what i suspect has happened here, is that one of your Windows Essential files has become corrupt. I NEVER install Microsoft update patches, because sometimes they screw everything up. On top of that, they also remove stuff you want to keep without notifying you first.

(EG: Microsoft no longer use their Virtual Java machine due to the court winning it to SUN. Almost every website out there uses the Microsoft one, which means you're screwed if it's gone. But what Microsoft dosn't tell you, is that their update: SP1a, actually removes your Microsoft Virtual Java Machine. Basts >_O )

Anyway. This can easily be repaired by:
Put your WindowsXP CD into the drive.
Reboot your computer.
On startup, run from the CD.
You will now be taken to the installation screen. Carry on as normal, even tell it to Install WindowsXP to the same Drive that you already have it on.
Once you have told it to install to that drive, the CD Will detect an installation of WindowsXP already and ask you if you would like to instead repair it.
Say yes, and it will continue to re-install all microsofts Vital Files.

This normally repairs problems, such as the one you are suffering. If this fails, then you could try Norton Utilities by using their Norton WinDoctor. This is also a diagnostic program which runs and checks your systems integrity and repairs them too. This normally solves a lot of problems also, and is very useful.

mixing NTFS and Fat32 can be a pain sometimes... NTFS has various features which are useful, but if you run on a Fat32 OS, then it won't recognise a HD which is formatted into NTFS without the use of a third party program (There are some out there which achieve this for you). if you're going to use NTFS, then you may as well do the same for all your drives. Besides, you're a LOT less likely to lose information when it's on NTFS, whilst Fat32 tends to lose it if you shutdown improperly, whilst it's moving information or the such. This is because NTFS Buffers the information for backup reasons, as it moves it. Whilst Fat32, doesn't.

I can't see why you would want to keep a Fat32 Drive really, but if you use it for taking around your mates house a lot; then i suggest buying an USB to IDE Cable or something, and disconnecting the drive whenever you don't need to use it. Or perhaps a Firewire (although they're expensive), which you disconnect whenever it's not in use.