It's only Windows internal formatting tools that are a waste of time - basically they decided at one point that you MUST upgrade to NTFS, so they ignored the fact that their own software couldn't format past a certain size. There is nothing in the specification for FAT32, though, that says you have to stop at that same size (I believe 2Tb is the first "limit" you hit) and so other software (e.g. Partition Magic, any linux tool like GPartEd, etc.) works just fine up to the *real* limit.
As the poster above mentions - you can buy 1Tb hard drives already formatted FAT32 without any problems and make them yourself.
Personally, I always use GPartEd from SystemRescueCD - it allows some fabulously complex partition actions (e.g. move, resize, copy, etc.) and appropriate formatting and I've never had a problem with it. Windows, on the other hand, even the Server versions, has regularly trashed partitions that it doesn't understand. Seeing as I manage Windows servers for a living, it's quite embarrassing for them that a Linux tool is infinitely more reliable, especially where moving existing data is concerned, even on NTFS partitions. Seriously - never try to do complicated partitioning using the internal Windows tools (whether GUI or command line) - I *have* seen them destroy working partitions that they didn't like the layout of (without warning, and with complete loss of data) and all the partitions they create are misaligned and suboptimal.
Use a third-party tool, and if possible use one that ISN'T going to be fighting over who can access the partition while you're modifying it - Windows is a pain in the arse for locking all partitions just for having explorer.exe loaded, so partitioning tools can't run. I prefer to boot from SystemRescueCD and then use GParted for everything I do, which so far has covered everything from Linux installs on 100's of netbooks, XP/Vista images for thousands of client machines, up to Windows Server 2008 installations that run entire schools.
