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STILL Stuck in a treestand....
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Anyone with questions on converting the systems here's alittle more info along with more insite into the benefits both of them have. It was written by by Alex Nichol, MS-MVP and is copyrighted.

Files in Windows XP can be organised on the hard disk in two different ways.

The old FAT (File Allocation Table) file system was developed originally (when the original IBM PCs came out) for MS-DOS on small machines and floppy disks. There are variants — FAT12 is used on all floppy disks, for example — but hard disk partitions in Windows XP can be assumed to use the FAT32 version, or 32-bit File Allocation Table.
Later, a more advanced file system was developed for hard disks in Windows NT, called NTFS (the “NT File System”). This has matured, through several versions, into the latest one that exists alongside FAT in Windows XP.
The file system used goes with an individual partition of the disk. You can mix the two types on the same physical drive. The Windows XP operating system is the same, whichever file system is used for its partition, so it is a mistake (and source of confusion) to speak of “a FAT disk reading an NTFS partition.” It is the operating system, not the disk, that does the reading.

Actual files are unaffected by which file system they are on; that is merely a matter of a method of storage. An analogy would be letters stored in an office. They might be in box-files on shelves (FAT) or in suspended folders in file cabinets (NTFS); but the letters themselves would be unaffected by the choice of which way to store them, and could be moved from one storage place to the other. Similarly, files can be moved between folders on an NTFS partition and folders on a FAT partition, or across a network to another machine that might not even be running Windows.

EXAMPLE: Consider the downloading to your computer of a file through a link on a web page. You click on the link, and the file is copied across the Internet and stored on your hard drive. If you download the file from this present site, the file is stored on a computer running Unix, which uses neither FAT nor NTFS. The file itself is not affected when it is copied from a Windows computer to the Unix-based server, or copied from that server to your Windows-based computer.

However, if a machine has two different operating systems on it, dual booted, they may not both be able to read both types of partition. DOS (including an Emergency Startup boot floppy), Windows 95/98, and Windows ME cannot handle NTFS (without third party assistance). Early versions of Windows NT cannot handle FAT32, only FAT16. So, if you have such a mixed environment, any communal files must be held on a partition of a type that both operating systems can understand — meaning, usually, a FAT32 partition. (See the article Planning Your Partitions on this site, under the section “Multiple Operating Systems,” for a table of which file system each recent version of Windows can use and understand.)

There are three considerations that affect which file system should be chosen for any partition:

Do you want to use the additional capabilities that only NTFS supports?
NTFS can provide control of file access by different users, for privacy and security. The Home Edition of Windows XP only supports this to the limited extent of keeping each user’s documents private to him or herself. Full file-access control is provided in Windows XP Professional, as is encryption of individual files and folders. If you use encryption it is essential to back up the encryption certificates used — otherwise, if the partition containing your "Documents and Settings" has to be reformatted, the files will be irretrievably lost.

Considerations of Stability and Resilience
NTFS has stronger means of recovering from troubles than does FAT. All changes to files are “journalized,” which allows the system to roll back the state of a file after a crash of the program using it or a crash of the system. Also, the structure of the file system is less likely to suffer damage in a crash, and is therefore more easily reinstated by CheckDisk (CHKDSK.EXE). But in practical terms, the stability of FAT is adequate for many users, and it has the benefit that a FAT partition is accessible for repair after booting from a DOS mode startup floppy, such as one from Windows 98. If an NTFS partition is so damaged that it is not possible to boot Windows, then repair can be very difficult.

Considerations of economy and performance
In a virtual memory system like Windows XP, the ideal size of disk clusters matches the internal “page size” used by the Intel processors — 4 kilobytes. An NTFS partition of almost any size you are likely to meet will use this, but it is only used in FAT32 up to an 8 GB partition. Above that, the cluster size for FAT increases, and the wastefulness of the “cluster overhang” grows. (For a table of the varying default cluster sizes used by FAT16, FAT32, and Win XP’s version of NTFS, for partitions of varying sizes, click here.)

On the other hand NTFS takes much more space for holding descriptive information on every file in that file’s own block in the Master File Table (MFT). This can use quite a large proportion of the disk, though this is offset by a possibility that the data of a very small file may be stored entirely in its MFT block. Because NTFS holds significant amounts of these structures in memory, it places larger demands on memory than does FAT.

Searching directories in NTFS uses a more efficient stucture for its access to files, so searching a FAT partition is a slower process in big directories. Scanning the FAT for the pieces of a fragmented file is also slower. On the other hand, NTFS carries the overhead of maintaining the “journalized” recovery.
Also, of course, in a dual boot system, there may be the overriding need to use FAT on a partition so that it can also be read from, say, Windows 98.

Leaving matters of access control and dual use aside, as partition sizes grow, the case for NTFS gets stronger. Microsoft definitely recommends NTFS for partitions larger than 32 GB — to the extent that Windows XP will not format a FAT partition above that size. However, with smaller sizes, FAT is likely to be more efficient — certainly below 4 GB, and probably below 8 GB. I suggest that NTFS should be used for partitions of 16 GB or above, where the FAT 32 cluster size goes up to 16 KB, the intermediate region (that is, partitions between 8 and 16 GB in size) being largely a matter of taste.

Ideally, a disk is initially formatted in the file system which is to be used permanently — NTFS, for example, can then put the Master File Table in its optimal location in the middle of the partition.

However, on an upgrade of an existing system, the file system is left as it is. For example, an upgraded Windows 98 system will be on FAT32. Also, some computer makers ship new computers with all partitions formatted as FAT32. These can be converted to NTFS if that seems more suitable to your needs. If you use the method described here, the result will be nearly as satisfactory as if a fresh format to NTFS had been done.

But this conversion is a one-way process. Windows XP provides a native tool for converting FAT to NTFS, but no tool for converting NTFS to FAT. It may be possible to convert NTFS to FAT using Partition Magic 7.01, but the result is uncertain. It you attempt it, it is essential that you first decrypt all encrypted files, or they will be forever inaccessible. (For this reason, Partition Magic will stop if it finds one.) If it is a new machine, too, be sure that your warranty will not be compromised by doing a file system conversion.

A further aspect that needs caution is that the conversion may result in the NTFS permissions on the partition and its folders being not the simple general access that might be expected. It is certainly important that the conversion be done when logged in as an Administrator.

Will a backup or image made from NTFS remain NTFS if I restore to a newly formatted partition?

This depends on the approach of the particular backup program you use. It may make an exact image of the partition, including the file system’s structures, in which case the restored partition will be exactly as the original. (Indeed, any format of the drive before restoring the drive image not only is unnecessary, but all that it accomplishes will be overwritten when you restore the image.) Or, the software may work on a file-by-file basis, in which case the files themselves will be restored — to whatever file system has been used in formatting the partition to which you restore them. But, again, note that a file-by-file restore from a backup of NTFS to a FAT partition will result in encrypted files being unreadable, because there is no way to decrypt them on FAT!
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