Even though I run Winders XP-Pro, I still use a FAT-32 format on all my HD's.
So, you might say that I've got a handle on how to deal with very large FAT-32 hard drives.
Even though XP's Defrag does a credible job of defragging the drive, I prefer to go just a little bit better.
To get a fully compacted drive like we got in 98 and ME, I have developed my own way of defragging my HD's.
Here's my XP-Pro HD after I've "Defragged" it MY WAY.

You may well ask, "How did you do that in XP?".
Well, XP really had nothing to do with it.
What I did was make a Ghost 2003 backup image of C: and then verify the backup and then do an immediate RESTORE of the Ghost backup file. Everything is re-written to C: in the same perfect order that it was entered into the Ghost Image.
I boot up my PC in DOS from either a boot floppy or boot CD, and run several batch files to remove the Pagefile.sys and all temp files, etc., before running Ghost. That decreases my file load in my Ghost backup file by almost 2 gigabytes.
I'm still getting my entire Ghost Image of C: on just one DVD.
It don't get much better'n that!
Cheers!