AFAIK you can flash the Z with a FAT-formatted SD card, but for CF it doesn't matter if it's formatted as FAT or EXT2..
To be on the safe side I would say use a CF card for NAND backups / restores. A 128MB CF card (which covers the entire flash storage area of the Zaurus C760) should be around the £25 / $45 US / €35
I tried to do NAND backup from SL-C860 to Lexar 256 MB SD Card
(factory formated) but I failed. After 20% got answer "Backup failed". I used Backup/Restore application
Then I bough a Lexar 128 MB CF Card
and everything went smooth.
Is it possibly Lexar formats SD to ext2? Actually I was not going to buy CF card since I wanted to have WLAN CF card. So it was additional spending.
Is only way to check format to install fdisk?