You're hitting the 32Gig FAT32 barrier for W2K...
The text below is from:
http://www.win2000mag.com/Articles/Index.cfm?ArticleID=8824
**************
If you're creating a new FAT32 system partition as part of your multiboot configuration, use Win9x to create and format this partition rather than format the partition during the Win2K setup process. Win2K installations usually fail when you try to use Win2K's Setup disk-management tool to create and format a large FAT32 system partition—particularly when the volumes you're creating are larger than 2GB. (Win2K Setup reports a disk-configuration error during the reboot after Win2K completes the text-mode portion of setup.) However, when you use the Fdisk utility from Win98 or Win95 OSR 2.x to create the same size system partition, Win2K installs to the Win9x-created partition without a hitch. Although this problem might be controller- or system-specific, it has happened to me on several systems that contain fairly ordinary system configurations. Therefore, I strongly recommend that you conduct any FAT32 system partition creation or management activities before you run Win2K Setup.
Another limitation is that Win2K artificially limits the size of FAT32 volumes that you create with Win2K. Although Win98 and Win9x OSR 2.x can create FAT32 volumes as large as the theoretical maximum of 2TB (the practical maximum is 127.53GB), Win2K limits FAT32 volumes to 32GB or smaller. Although this limit isn't likely to affect the average user, hard disk capacities are increasing so quickly that this limitation could affect future users. (The average hard disk size on new workstations is 13GB to 20GB, so a 32GB volume isn't unrealistic.) This artificial limit is Microsoft's method to steer users away from FAT32 and toward NTFS for large Win2K volumes.
**************
I think it explains the problem for you...
Worth reading the whole article...
The article is from the
http://www.win2000mag.com
resources - to give due credit to where it's due.
Incidentally - I suggest you have at 'least' two partitions on any HD; one for OPS/apps. and one for data... (Secures data in event of reformat of Primary partition and OS re-install etc.).
It 'used' to be the norm in days of yore... (trips over beard reaching for warm milk and cookies...)