Im not saying your wrong but im in the process of formatting a 1 TB external drive to NTFS on XP Pro without any troubles as im writting this. Im unaware of this XP problem as I have never seen it before, however if you are able to format your drive you can find out by,
1 - Connect your external drive so that it can be seen in My Computer,
2 - Right Click on it, and from the drop down menu select Format
3 - Follow the steps, Select NTFS from the drop down menu, Rename yor hard drive if you want to and leave everything else as it is, then click Start.
4 - Profit
If you want you can also Right click on My Computer, and from the drop down menu select Manage, then select Disk Management from your options on the left side when the window opens up. You can format your drive from here simply by right clicking on it again and selecting Format.