fat16 works better on the z especially if you want to be doing nand restore from your sd card
if you are going to stick with fat32, use fat32(LBA). But for restore purpouses, use fat16(LBA).
hmm.. come to think of it, I think that's the reason why my 4gb failed. Probably not supported. Anyway, stick with fat32 but if you ever need to do a nand backup or restore, just for your information, it will only work on a card with fat16 (LBA). I use a 2gb at the moment.