yes, use ext3, that's the right one. you could use reiserfs alternatively if you want to be picky about it...
if XP is on NTFS then it won't let you specify a mountpoint, cos NTFS isn't supported properly on linux. if it is still fat32, then you can easily edit the /etc/fstab file manually, without worry.
a line like
/dev/hda1 /mnt/windows vfat defaults 0 0
will do fine