Use NTFS with Win 2000 if you wish to use all the security features.
No not all programs that will run on 98 will run on win 2000 but it has nothing to do with the disc format (fat 32 or NTFS) its because win 2000 is based on NT which is a more stable and secure operating system than win 9X.
i upgrade my win98 SE to win2000 FAT32. all my program (incl. such oracle, etc) are running well with win 2000 FAT32. (incl. security features also).
usually, if we install win2k under NTFS then we have to find software under NTFS also. in my case, i run my pc under win2k, but for software i install win98 version. (say for software oracle, my win2k pc will refuse NT version, and run 98 version instead).