I'm unable to create usable home directories for users. Using the adduser command gives me the following:I can create new users, but not usable directories. If I create a directory in /home and try to change its owner or read/write/execute permissions, I'm told that the "operation [is] not permitted."

I had trouble creating users during installation. Could someone please help me out?

it sounds like a permissions issue having to do with
/home, Now is /home on its own partition???
how is /home listed in your /etc/fstab??

I was setting up a vfat partition for Windows and Linux to share. I thought why not put the /home folder on the shared partition cause it will have all my linux docs. Was this a bad decison?

/home is listed in /etc/fstab as being on the shared vfat partition (/dev/hda4).

I am unable to create users with 'adduser' because it gives me the same as above:

root@computer:~ # adduser newuser
Adding user `newuser'...
Adding new group `newuser' (1001).
Adding new user `newuser' (1001) with group `newuser'.
Creating home directory `/home/newuser'.
chown 1001:1001 /home/newuser: Operation not permitted
Cleaning up.
Removing directory `/home/newuser'
Removing user `newuser'.
Removing group `newuser'.
groupdel: group newuser does not exist

If need be, can I move my /home directory to my ext3 partion by just changing the /etc/fstab entry? Or do I need to take further steps?

Thanks

I *think* /home has to be on a nix file system. I don't think fat32 handles the permissions correctly. But don't quote me on that.