File systems are something I know much about, so let me weigh in…
NTFS is a fine file system for Windows. It will probably never work well for Linux because Microsoft keeps all details of it secret. Hackers have spent years trying to unravel NTFS’s secrets. It’s only been recently that they were even able to get Linux to write to it (in the past, most Linux distros mounted NTFS partions as read-only). In other words, NTFS on Linux is still a kludge - it’s slow, unstable, and will probably continue to be so for quite some time.
Windows only supports two file systems - NTFS and FAT32. Windows will not read a partition formatted by one of the several other file systems that Linux supports (ie ext2, ext3, Reiser, XFS, JFS). Linux can read and write to NTFS and FAT32. Microsoft likes to pretend that Linux doesn’t exist.
You could install both Windows and Linux on FAT32 partitions, but this is a VERY BAD IDEA. Doing so would blow a gigantic hole in your security. FAT32 lacks any security features, which is one of the reasons why Windows 98 was a malignant tumour when it came to viruses. FAT32 does not support ownership permissions, so any system file is left wide open to viruses and spyware. If you use FAT32, there is no point in having a Windows administrator or Linux root account - every file can be read or written to by anybody, including a virus. Passwords would protect you from nothing.
The only use that FAT32 would possibly have on a modern computer is if you want to use it as an intermediary partition, which can be written to by both Windows and Linux. But it is not really necessary, and I’d advise against it. The main use for FAT32 these days in on USB memory sticks or SD cards. If you have an external hard drive that you use for backup, you might want to format it in FAT32 so that it can be read/written to by both Windows and Linux (but I keep mine formatted with ext2, since I don’t use Windows at all).
My suggestion - format your Windows partition with NTFS, and Linux partitions with ext3. For an external hard drive that you don’t need to access with Windows, ext2 is recommended. The difference between ext2 and ext3 is that ext3 keeps a journal that helps in data recovery in the event of a crash, but that’s not an issue on an external hard drive (and reading/writing the journal slows performance).
In the near future, we should be seeing ext4, but it’s not yet ready for prime time.