Re: Cat-5?
In 1990 DOS 4.0 had been out for a couple of years, and that supported larger than 32MB FAT partitions, as did specific (Compaq) versions of DOS 3.31, and DRDOS. Alternatively you could run OS/2 and have a 64GB HPFS partition, although the real limiting factor was the time and memory needed to check the disk when it wasn't shut down correctly.
40MB wasn't that large - the Amstrad 286 I had at home had a 40MB drive, and it filled up remarkably quickly, ended up using one of the disk compression utilities.