"The problem is that it won't recognise the Fat32 formatted floppy disk, and more than one disk has been tried. "
There are two possible solutions to your problem.
1. When you install SuSE 7.1 be sure to include MS-DOS support.
2. You can format a floppy as a minix file system. Log in as root. Put a floppy disk in the floppy drive and use this command to format it:
mkfs.minix /dev/fd0
then use the minix floppy when lilo asks for a floppy.
If you can't format a floppy as minix then format it as ext2:
mkfs /dev/fd0
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Steve Stites