It depends on your needs.
If compatibility between different OSes is important, use FAT32. Pretty much everything can read and write to it: Windows, Linux, Mac OS X.
If it's just Windows XP and/or Vista, you may want to use NTFS. It's more sophisticated and keeps track of owner and group, and file permissions, etc. (Other OSes can often read NTFS volumes, but usually can't write to them.)
But if it's just a bunch of media files or something and you don't care about permissions, then I'd use FAT32.
Here's a decent summary of the advantages of NTFS:
http://www.theeldergeek.com/ntfs_or_...ile_system.htm
Other than compatibility, and advantage of FAT32 is simplicity. Without any file permissions, there's no chance that you could inadvertently deny yourself permission to access a file. The ownership/permissions thing could maybe complicate things when connecting the drive to a different computer (with a different user account) -- although I don't really know how that works in any detail.
USB Flash Drive - format to FAT, FAT32 or NTFS?
