For one, you can't use the "on-the-fly" encryption of the NT-based
system on a FAT(32) partition, a good second reason is that - because
of this - everything stored on that drive is a open as a magazine in
the library, and is accessible with any DOS boot floppy... even your
account info (think of the contents of "Documents asnd Settings")!
An NT based boot CD (WUBCD) will accomplish the same thing for NTFS
volumns as a DOS boot floppy does on a FAT32 volumn, won't it?
Another "security" aspect is the stability, NTFS is way more stable
than FAT32, and therefore is less prone to problems in the file system
(hardware errors excluded of course)
I tried both with XP. I had some legacy problems running an older
commercial version of PGP with NTFS. That's the only difference I
noted.
I bought a newer version of PGP and run NTFS now, because it is more
stable, as I understand it anyway.
Talking encryption and security via a MS OS is pretty futile. These
attributes really require a heavy weight professional. As Gibson said,
"A false sense of security is worse than no security at all."
As far as backup goes, imaging or cloning with the WUBCD seems to be
the best option to me. Unfortunately, this requires a Win XP install
CD. It's an extremely handy tool if the OP can swing one.
For registry backup alone, a copy of a good reg can be copied back
using the CD, should something go really bad after an install,
uninstall, or registry cleanup.
http://windowsubcd.com/