I've installed many Linux Distros and have always just kept WinXP on the first partition of the first drive. Whenever it comes time to making partitions and formating in any installation process, I try and keep it fairly manual, simply because I know what I want and the installation program does not. If you do it this way, most likely when Linux wants you to choose a bootloader, it may not "find" your windows partition. That's not a problem, as it's friggin' easy to add it.
Install FC3 with two partions: one ext3 and one swap. That's it. So, you can set up the second partition as SWAP (about 500MB is fine) and the third as ext3 (the rest of the drive if you want). That's probably the best way to do it. I'd recommend GRUB over LILO as GRUB is more powerful and will probably be used by more and more distributions. Also, DO NOT use Microsoft's bootloader. By definition Microsoft OSes are incapable of any knowledge of any other OS except their own (and even that's not always true as microsoft is trying to forget the days of win95 technology). Use GRUB.
Here's a snippet that you need in /boot/grub/grub.conf (GRUB's configuration file):
title Windows XP
That should be all that GRUB needs to load Windows. I've never really had much of a problem loading windows. A few times it has completely freaked out, though. Telling me I need to reload windows or restarting the computer instead of loading. But I usually just happily use Linux until windows gets over it and it works fine again (probably some mysterious microsoft boot code...I don't know).
hope that helped. If you need more help, please be a little more specific about what you need help with.
-- the dudeman