"Therefore, Windows 2000 uses FAT12 as the format for all 5?-inch floppy disks and 3.5-inch floppy disks, which store up to 1.44 MB of data." This applies to XP as well.
You can make other formatted diskettes, but take the default for compatibility reasons.
I was just reading a few of the posts, and now have another question. I am trying to format some of my older floppies, and when I do, the only option that comes up is FAT32. I have my computer with XP using NTFS. Will the FAT32 work on this computer just as well? I did use one and it really didn't seem to matter. I don't use them that much so hate to go buy new ones (not knowing if they will be any different.)