Shouldn't be a problem. XP runs on NTFS (usually), but can also work on a FAT32 partition. Either way, you shouldn't have a problem with filenames.
If you have a lot of images, it's possible that explorer.exe (which in XP handles the directories) is overloaded. Lots of pictures require a lot of memory as explorer shows most all the thumbnails--learned that the hard way...8^)
Then if that's the case, then I would recommend splitting the images over several directories. That way, Explorer won't have to work as hard and suck up memory.
If that doesn't work, let me know, describe the problem as best as you can, and I'll put up a TechSupport thread.
Mine is running on NTFS but I still thought if the tree was too long it will topple over not the length of file name but total length of tree.
As I said it only recently happened so I am wondering what I have done that would cause it to happen.