More misinformation bashing other misinformation
The actual limitation of FAT32 is 8 TB. You must create the volume with something other than windows 2000 or XP like Partition Magic.
From MS.com
" Limitations of FAT32 File System
View products that this article applies to.
Article ID : 184006
Last Review : December 16, 2004
Revision : 3.2
This article was previously published under Q184006
For a Microsoft Windows XP version of this article, see 314463 (http://support.microsoft.com/kb/314463/EN-US/).
SUMMARY
This article discusses limitations of the FAT32 file system with Windows operating systems.
MORE INFORMATION
The following limitations exist using the FAT32 file system with Windows operating systems:
Clusters cannot be 64 kilobytes (KB) or larger. If clusters were 64 KB or larger, some programs (such as Setup programs) might calculate disk space incorrectly.
A volume must contain at least 65,527 clusters to use the FAT32 file system. You cannot increase the cluster size on a volume using the FAT32 file system so that it ends up with less than 65,527 clusters.
The maximum possible number of clusters on a volume using the FAT32 file system is 268,435,445. With a maximum of 32 KB per cluster with space for the file allocation table (FAT), this equates to a maximum disk size of approximately 8 terabytes (TB). "
Using FAT32 Drives with your 360 Couldn't have said it better myself.