FAT32 means your new Iomega drive isn't going to work.  You don't want to format a huge new external HD in FAT32.  Just get a 1-2GB USB thumb drive.
		
		
	 
I formatted my 500gb Seagate 2.5" USB HDD as FAT32 - no problems. 
 
I bought it to use as a large storage drive to hold things for both my laptop and PS3, and was at the time, completely unaware of the PS3's refusal to cooperate with NTFS. I was upset, but then realized the more recent FAT32 formatting could easily handle large drives.
Only issue with FAT32 formatting, is while it can handle large drives, it will not allow files larger than 4GB.
So the issue with formatting a 1TB HDD, is while you 
can, you will have to remain aware of the file size limit.