Most of the time the FAT32 partition Boot Camp makes can be harmed when you original hard drive has some unseen errors on it. First un-partiton the drive. Then your best bet would be to boot from the Install disk but don't go through the Install. Instead when the install disk starts up go to the menu items and find Disk Utility. Launch that and select "repair disk". After that re-run BootCamp and try that again.
If it still doesn't work reformat the BootCamp drive NTFS. Windows XP should recognize that partition then you can use the Windows XP to format FAT32 if you want (before the Windows install).