It's a good price for that size drive..... As Rob said, Seagate drives are reliable and aside from the 500GB My Book that someone mentioned on here from Amazon (which was 99.99) the only other ones I've seen are around £120. Just noticed that this is free del as well, and the feedback is good, so you're getting an extra half terabyte of storage for under £100......
If I wasn't going on hols next month I'd probably order one myself for those just in case moments, but the Mrs would have my body parts off
Nearest I could get to this price on a quick recce of my usual haunts was a 500gb SATA Hitachi Deskstar Drive, with External SATA Enclosure separately ordered, for £111 (Inc Vat and Delivery).
My only worry would be that with 500GB of data on it and plenty of activity, it might be a bit prone to overheating if left on all the time. If you're thinking of leaving it on it might be worth having a quick look at the Networked Storage options (similar to this but with network connection as well as usb) as these tend to have cooling fans, and 'hibernate' functions, but then the price goes up as well.
EDIT - Sorry, forgot about the formatting bit... FAT32 is generally deemed to be OLD now. and NTFS is more comatible with modern O/S.
Dug this out from somewhere about FAT32.
'FAT32 has limitations. Unfortunately, it isn't compatible with any operating system other than Windows 98 and the OSR2 version of Windows 95. However, Windows 2000 & XP will be able to read FAT32 partitions. The other disadvantage is that your disk utilities and antivirus software must be FAT32-aware. Otherwise, they could interpret the new file structure as an error and try to correct it, thus destroying data in the process'. Also I vaguely remember from somewhere that your maximum filesize on a FAT32 Partition can't exceed 4GB (for one file) whereas I don't think there is a maximum for an NTFS partition.
Downside of NTFS is that it's file structure and protocol takes up more space on your drive..... so a 500GB drive when formatted in NTFS will actually have less than 500GB of free space (sorry don't know off the top of my head how much you'll be left with but would guess at around 460GB)..
More information can be found here:
http://www.ntfs.com/ntfs_vs_fat.htm
There's loads of pros and cons, but personally I'd stick with NTFS.
Easy to do from Control Panel/Administrative Tools/Computer Management