Nope, XP is not downwardly compatible with many programs.
I hope MS are not claiming this? If they are they are lying.
It uses NTFS, and i dont think you can make it use FAT32 as you can in 2000. Some programs that were designed to run on FAT32 simply wont on NTFS. That may be the issue with your games, i dont know to be honest - im not a gamer, or a computer geek!