FAT is good... As a matter of fact, correct me if I am wrong people, it is the only filesystem that the 3 major OSs (win,mac,linux) can understand natively.
The reason that Linux, Mac OS X, and other UNIX type operating systems can't reside very well on FAT is that the filesytem uses one security ID to identify both users and groups. UNIX type filesytems like ext, ext2, ext3 and UFS use both an User ID and a Group ID to indentify uses. Obviously there is more to understanding this so if you go http://www.netapp.com/tech_library/1005.html#3.1
it should help a little. This site give a <i>brief</i> overview of what I am talking about.
The Mandrake installer does create a second /home partition by default. Default partitioning of a Linux distro is entirely up to the creator of that distro. Red Hat does it differently from Mandrake and Red Hat even does it differently depending on what type of system you tell its installer you are creating (server/desktop). If there is some advantage to having /home on a seperate partition is up to you. On a desktop install I don't seperate it out...
If I were building a file server system, or one that many people would be using as a desktop, I would seperate it out. But, because it is probably just you using the system, I don't see the need for it.
If you would like to know more, just email me...