By default, XP limits your options to FAT or FAT32 only.
To get around this, plug the thumbdrive into the PC. Go to My Computer and right click on the drive. Select Properties. When the window opens, select the Hardware tab. You should see all the drives connected to your PC. Select the thumbdrive then click on Properties button in the lower part of the window. When the new window opens, select Policies. Click the radio button for "Optimize for Performance" then click "OK". You might actually find the window opens for you at this point.
Go back to My Computer then right mouse click and select Format. You'll now see NTFS as an option. Save any data and then go ahead and reformat the drive. WinXP isn't too kind on NTFS formatted thumbdrives and as their lives are limited, based on the number of insertions, and to maximise this, you need to remove the drive by using the "Safely Remove Hardware" option - look in the taskbar for the green icon - when you unplug your UFD to stop any file system corruption. Simply pulling it out may corrupt the data - as I know from experience.
If this works, I'd then reformat the drive back to FAT and go back through this rigmarole and reset the Drive Properties to "Optimize for Quick Removal" as you've less chance of corrupting the data if you inadvertently (or someone else does it for you) remove the drive without using the "Safely Remove Hardware" option if formatted using FAT.