Eh, blame my mother for the last post. She woke me up entirely too early. And blame alcohol and the same lack of sleep for the incoherence of this post.
Anyway, I’d go with one small partition for each OS - say, 4-5 gigs or so - and leave the rest “big.”
I used smaller partitions at one point and ran into space troubles while making disc images of CDs and doing my video capture stuff (which, between the raw files and the compressed final products, make up the bulk of my media files - music makes up much of the rest).
At the same time, though, I decided that 6+ hours of defragging a 22 gig partition took long enough, and that I had no desire to see how long defragging a 50+ gig partition would take. Thus the two 28 gig partitions. But, hey, that’s just me. 
As for the file system, I’d probably go with FAT32. There are some advantages to NTFS (which, I assume Win XP can/does use), not the least of which being some security features and the ability to have files that are 2+ GB, but this causes trouble with my Win 98/Win 2K dual boot, and I could imagine this possibly causing trouble with file sharing should you ever have a Win 9x computer on your network. (Note: I suck at network issues. I have no idea if there would be compatibility issues in this case.)
As far as games go, any partition of 20 gigs or so should do you. Personally, I have Baldur’s Gate 2 (about 1.4 gigs), Diablo II (1 gig, or so), Unreal Tournament, Quake 3, and Deus Ex all installed on one of my 28 gig partitions with no space problems. Even after installing apps (Photoshop, Office, etc.), I have about 7 gigs left over.
As for the partition/drive thing, you can put both OSes on different partiitons of the same drive, no problem.
As Phlip mentioned, if you want to use certain apps (and, to a lesser degrees, certain games) in both OSes, you have to install them through both OSes so the registry entries for the software exist in both. (Games, in general, tend to write less crap to the registry than apps do, so you may not have to do two installs for each game you play.) For most apps, especially since you’re running two NT-based OSes, you should be able to have both installs install to the same directory on the same partition to save space. (Yup, clear as mud, ain’t it?)
Bottom line: go for big partitions (except, maybe, for the partitions you’re going to put your OSes on). Defragging may take 8+ hours, but your computer should be about three times as fast as mine, so it probably won’t.
So, heh, have fun. 