No, the FAT32 system won't have any problem reading the files (provided it has permissions to view them on the NTFS system or they are copied to it or a disk media it can read). When any 9X sytem accesses an NT/2K server using NTFS (the vast majority do for security reasons) the two file systems are working in harmony...so it won't be any trouble.
I'm not sure about the partition thing...do you mean the OS is installed on the small partition and you have a lot of free space? If so, this is generally a good idea. It keeps your OS partition running smoothly and stops it getting cluttered/fragmented with adding files, apps etc. I usually install my systems this way. Alternatively, if what you mean is in addition to your primary partition you have a small partition with system files, perhaps this is where the cab files and such were loaded for easy access in future (particularly if it was a preinstalled OS).
Hope this helps...good luck.