FAT32 does have limitations however it is officially supported and painless to use. If you're not familiar with fink or the command line, using an NTFS drive can quickly become a chore. If you have file size issues, some apps allow you to break up the files into 2GB chunks that might make life easier.

btw if you're using an external drive to transfer large files, firewire would've been a better choice. I find USB2 to be significantly slower than even firewire400, not to mention firewire 800.