FAT32 handles just about any size just fine.
http://support.microsoft.com/kb/314463/
"The maximum disk size is approximately 8 terabytes when you take into
account the following variables: The maximum possible number of clusters
on a FAT32 volume is 268,435,445, and there is a maximum of 32 KB per
cluster, along with the space required for the file allocation table
(FAT)."
Which is strangely contradicted in this article:
http://support.microsoft.com/kb/310525/
"FAT32 supports drives up to 2 terabytes in size."
The problem is that you lose a lot of the robustness of a File System
designed to handle the larger file system efficiently.
Learn more here:
http://www.microsoft.com/technet/archive/winntas/tips/techrep/filesyst.mspx?mfr=true
In the OPs case - they should go with FAT32 so they can access the
external drive on their Windows 98 machine - but know that they will not
be able to put a file on it larger than 4GB.