The reasons why you usually don't/can't use FAT nor NTFS for Linux are:
1) FAT doesn't support permissions the way Linux would like to (you'll see this if you copy stuff from Linux to a FAT-partition, you'll probably get errors that permissions couldn't be set)
2) Linux NTFS support is bad; you can read XP's version of NTFS well (at least I have encountered no problems so far), but writing to such an NTFS partition is a pain. There are some tools, but generally they have pretty small success percentage (i.e. not all writes/deletes etc. work, part of them will fail). As Vista represents a new version of NTFS (I think it does), this will change from bad to worse I guess, at least for some time.
In addition the filesystems Linux likes to use (ext..ext3, reiserfs, and others) provide such functionality Windows' filesystems can't offer. FAT is great for removable media like USB mass storage disks since it can be read from (and written to) by many operating systems (if not all), but for installing a whole system (securily) it's not that good a choice.