AbhishekD,

Yes you can install XP using a FAT32 partition, and partition magic should handle the logical partition bit, however I STRONGLY RECOMMEND THAT YOU DON'T DO IT.

lepricaun has the reason, you are using partition magic 5.0 and you need to be at 8.0 to support XP properly. Also, I hope that you have a legitimate and not a pirate copy of Partition Magic, there are a lot of pirate versions around that will just screw up your system.

Good luck

EDIT: /off topic

cgkanchi, the snakesofindia link doesn't work I get
No web site is configured at this address.