1TB NTFS to FAT32 Drive too big

The Live CD of GParted will do what you want.

http://gparted.sourceforge.net/livecd.php

Try doing it via the command prompt. Go to Start -> Execute: cmd -> Enter

Execute the following:

 format (Drive letter): /FS:FAT32

You don’t need to use cmd prompt at all sometimes. But the following way might actually take twice as long or not at all as the above example but you could use it if you are uncomfortable using cmd prompt.

Format the disk as NTFS using first. Once this is complete you can then right-click the partition and choose Format. In File System you can then select FAT32 from the drop down.

The reason you can't do it directly is because Windows has this limited through the GUI.

From: http://en.wikipedia.org/wiki/File_Allocation_Table#FAT32

The Windows 2000/XP installation program and filesystem creation tool imposes a limitation of 32 GiB [18]. However, both systems can read and write to FAT32 file systems of any size. This limitation is by design and according to Microsoft was imposed because many tasks on a very large FAT32 file system become slow and inefficient.

...

The maximum possible size for a file on a FAT32 volume is 4 GiB minus 1 byte (232−1 bytes). Video applications, large databases, and some other software easily exceed this limit. Larger files require another formatting type such as NTFS.