Great news, glad to hear it!

You do seem to already have a FAT partition that can be used by both Knoppix and Windows. As to that secnd drive, yes and no. That is, you didn't really say what you were hoping to do. There is no Linux tool, and no tool at all that I am aware of, that can change an NTFS partition to FAT. And there are files that can be put on an NTFS partition that are too large to fit on a FAT partition (which would present a real problem if you had such files, 4 gig or larger in size).

So yes, you can delete the NTFS partition and create a FAT partition in it's place. And no, you can't convert an existing NTFS partition to FAT and retain it's contents. I'm not clear on why the first hard drive FAT partition isn't suitable for a common point of storage between the two operating systems, but if you want to make the second hard drive FAT then I would suggest making a good backup of everything on that hard drive (always a very good idea when you have XP anyway, since many of the users who come here to learn about Knoppix are trying to recover data that XP will no longer access and they have no backups) and then deleting the NTFS partition and making a FAT partition in it's place. Actually you can do all of that in Windows and I would actually suggest doing it in Windows rather than this OS that is new to you.

I would also suggest that if you remove the NTFS partition and make a FAT partition on the second hard disk that you might want to leave a bit of space (say 8 to 10 gig) for a future Debian or other Linux install. If you don't use it you can always make an extended partition and put another FAT partition in that. But it's harder to shrink a FAT partition once you have one, so now would be a good time to leave the space so that you could have a Linux install on that disk if you want one.