If you run NT setup from the dos partition... and point it to the Extended partition area (into a logical-drive) you will be limited to a 4Gig partition (logical-drive) for NT system files - be that fat16/ntfs.The balance of drive can then be configured later via disk admin tools to be as you wish...
However... if you first install NT to the (500Meg - fat16) dos Primary partition (alongside dos 6x - and thus create a dos/NT dual-boot) then you can use NT disk admin tools to partition balance of drive as you wish. This will allow you to install NT (again) to the Extended partition; and either have its system partition (logical-drive, still as fat16 - 4Gig max), or as ntfs and obviously larger than 4Gig.
This will give you a triple boot - dos/NT (in c: ) and NT in d; (or wherever you elect to put it...
You can then dump or retain the version in c: - personally I'd retain it.
Advantage of this approach: gives you a means of utilising the drive better overall; the version in c: (Primary partition) allows you way back in to data etc. if the "main" installation (in Extended area) goes pear-shaped...
That initiall NT installation can be just the OS + sp-4 or later; an app/util too if you have the need - and adequate space left.
NT itself will go nicely into a 500Meg Primary.
In each NT installation supply sp-4 or later to allow you handle/access etc. the drive properly - if in excess of 8Gig...; or intendeing to have this installation come in contact with W2K - i.e. it would be Slaved or Master to a W2K installation...
When W2K finds NT - i.e. NT4 version of ntfs - (i.e. in the same physical system - not across a lan) it instantly adopts it, and converts and NT style ntfs areas to the W2K version of ntfs... You have no say in the matter... And unless you have sp-4 or later already installed in that NT installation - prior to the predations of W2K, you will not be able to access its ntfs areas - after W2K has adopted/converted it...
Need more clarification on the dual/triple-boot scenario, or the issue of W2K and NT versions of ntfs... post back.
Incidentally NT4 CDs are usually around at clearance house, computer-fairs etc. for very few pennies; so perhaps consider acquiring one that way - to save you the trouble etc. of copying the umpteen floppies etc.?