It's not the ONLY way, but it's the only way that makes sense. At this point your first partition has been converted to NTFS, and it is using 512 byte clusters. If you use third party software to expand the partition to use the whole physical drive, you'll wind up with a 30 gig partition using 512 byte clusters.
When you re-install, I recommend that you forget about FDISK. Don't get stuck in the DOS rut. The old DOS FDISK is not the best tool for preparing a hard drive for a W2K installation. Boot from the W2K setup CD, select a clean installation, and use the setup program to delete / create / format the partitioning arrangement you want on the system. If you choose NTFS and accept the default for that size drive (anything over 2 gb, actually), it will be formatted with 4,096 byte allocation units or clusters. That cluster size is just about the optimum compromise for all but a handful of situations. I don't believe the setup program will even offer the choice of FAT16, though I've never paid particular attention to that point. I use NTFS on every NT / W2K system. If you're going that way, though, do take the time to learn about the use of the ERD and the Recovery Console because the standard ploy of booting with a DOS system diskette will no longer get you access to your partition should you experience a boot process failure.
If you have no security concerns and the system is primarily for personal use so that file system reliability isn't an absolute must, you may be happier using FAT32, which is also available from the setup program.
Don't worry about having to start over. You'll spend more time and effort trying to salvage what you have and make it work than you would if you just started over. Besides, starting over is going to net you a partition whose file system doesn't fragment as readily as the current one with its 512 byte clusters.
Regards,
Jim