Is there any real bad problems with FAT32? I know I can't go above 4GB with a single file, or above 32GB with the entire partition, but are there performance issues or anything?
One major difference between Fat32 and NTFS under windows, is that you can't assign security permissions to a FAT32 drive (your files will always be accessible by all users). Another difference is that you can not use the built-in windows file compression unless it's an NTFS volume.
also, if you have many small files you'll waste significantly more diskspace on the drive when you use FAT32 -- under NTFS, the default cluster size is 4KB (but this can even be lowered if you deal mostly with smaller files). That means that each and every file (even a 0-byte one) actually takes up 4096 bytes of diskspace. Under FAT32, however, the cluster size can be significantly larger depending on the partition size:
If your partition is between 8 and 16GB, then the cluster size on a FAT32 disk is 8KB. If it's between 16 and 32GB then the cluster size is 16KB. Larger than that and it's 32KB.
(Note that you *can* use windows 2000/XP on a FAT partition larger than 32GB, but the catch is that the fdisk utility that comes with windows XP is artificially limited to 32GB in order to persuade people to use NTFS instead. but if you insist, you can still use partitions larger than 32 GB -- you'd need to use a windows 98 bootdisk and use it's fdisk to set up the larger partition first, and then you can install XP on the (now existing) larger partition.
As far as speed is concerned -- the benchmarks I've seen seem to indicate that in general there is very little speed difference between both of them...
But the bottom line is still that NTFS is a better format overall, which gives you some features that FAT32 does not, and wastes less diskspace space thanks to its smaller cluster size.
Since OS X apparently can read NTFS partitions but not write to them, that might be enough of an inconvenience to stick with FAT32 of course.