You can format well over 32GB w/ FAT32. It's the mobo's that can't handle the size usually. FAT32 goes up to like 4 Terabytes, I can't remember exactly.
Anyway, get yourself a 9X or Me disk from
Bootdisk.com and FDISK to your heart's content. Make it a 120GB partition if you want, just opt not to format during the install.
Have you tried a different IDE cable perchance?
EDIT - I think it's 2 TB's, not 4.