ME and 98 both use the FAT32 file system on their drives. So that doesn't matter. In fact, it really matters very little what you pick in that box. If you decided to install 98 or ME on the drive, it would be easily formatted from Windows. You could format the drive as NTFS from within XP if you later decided on using that file system.
In short, it matters very little because changing it to whatever you want is very easy to do after it arrives.
But since they are offering, if you are planning on 98 or ME, let them format for those using the FAT32 file system. If you are thinking NT/2000/XP/2003, then choose the NTFS file system for those. But you can easily change it to whatever you want after it arrives.
That looks like a very good deal.