i use fat32 on all three of my 256 thumbdrives. i have used ext2 on one before when i was trying to build a LFS (linux from scratch) on it - that worked good too.
if the fat32 doesnt work for you, you might need to check your kernel configuration - or recompile your kernel if your using the distributions stock kernel. I had some troubles with my kernel recently not mounting fat32. I had it enabled in teh filesystems what i didnt have and needed was support for codepage 437 in the Native Language Support
hope this helps