LOL, know this is an old thread, but when I googled about which to format a USB drive to, this is the first result
From [very recent] experience, FAT32 is the best. Had so much troubles with FAT! I'm not sure why, but an error message ["Cannot create directory blahblah"] appears out of nowhere then I have to format again! After a few more formats, decided to go with FAT32. With FAT32, transferring files is a breeze.
Hope this helps, uhm, future USB flash drive users out there lol