IIRC, Win98 can use large FAT32 drives, it just won't let you create them / install the OS itself on them.
not that ive tried it in the machine (id have to unbox it first) i thought it would throw a hissy fit or just plain ignor a 320gb usb drive
found out by chance looking at some pix i took of my current box that its sata and im after a 1tb internal for all my mp3's etc so i dont need to get a controller card :)
the loud cpu fan thread started it, i was sure my fan was the size of a 50 cd spindle lid or there abouts and the drive was in an odd position and i thought hmm whats this red cable and wheres the ide? joy it must be sata
and i only took those pix after i threw my old drive in to copy stuff over, thought whilst its open lets get a few david baley's