Any Pentium class machine will do the job perfectly. You'll be bandwith limited
LOOOONG before you hit a hardware limit. And if you already hit one, it'll certainly be the hard disk. Serving files over an FTP connection doesn't stress the CPU/memory a bit.
If you go the linux route : go with something like debian, since it's small, has no fancy X stuff by default, and is very secure overal. Do
NOT forget to give disk optimalisations through hdparm, because I've noted that almost no Linux Distribution offers the best performance out of the box, you'll have to tweak it ('man hdparm' will prove very helpful for that).
As for FTP-server software : I suggest you use Xitami (
http://www.xitami.com/). It's free, small and extremely flexible (it's an HTTP&FTP server in one). The regular FTP programs, like proftpd and wuftpd, are a pain to set up properly sometimes. Xitami is really easy to setup.
There's also a windows version of Xitami. I've been running that one with Win98 for a long time, and it's good enough for me. A patched up Windows98 will do too for you, since you'll hit the limits of your bandwith sooner than you'll become limited by your hardware/OS.
EDIT : and as for Linux reading FAT32 drives : no problem. It's a kernel side thing, and I think almost every distribution offers FAT32 read/write mode in their stock kernel. And if that still doesn't work, grab the new 2.4.2 kernel and compile it in yourself
