ISO9660 is the standard format for all CD's, all OS'es will be able to read this format.
UDF is used only on CD-RW discs when you use them with programs like DirectCD and InCD to allow you to use them like a floppy disk. (Also known as Packet Writing)
ISO9660 was not designed to be used like UDF is, if your going to use your CD-RW disc like a big floppy disk (being able to delete/move files to/off it on the fly) use UDF. Remember however that UDF discs will only be readable in OSes with a UDF reader installed (Win2k/XP already have a UDF reader installed, Win9x/ME do not) Due to UDF's design there is alot of filesystem overhead, therefore a 650MB disk after formatting will only have about 550 MB available space.
Unless you really need to update files on the disc often, its best to use Nero or EzCD and burn the disc as a standard Data CD (ISO9660). If you need to update/add something down the road just copy everything off the disc to your HD, quick erase the disc and re-burn.
DirectCD and InCD often tend to be flakey, I don't personally trust packet writting programs. Lost too many discs full of data with DirectCD, it always managed to mess the filesystem on the disc up somehow.