[ffooky]

AFAIK Leopard is read/write compatible with FAT32 but unless you're intending to share the drive with a Windows box and as long as you have temporary back up storage space you may as well reformat to HFS Extended.

Just to rule out any problems with the HDD or its formatting, try decompressing/playing some FLAC files from your internal drive (I'm presuming the FAT32 one is an external).

For iPod listening I'd recommend you to try converting from FLAC->MPEG-4 AAC (True VBR, Max Quality, 127 Target Quality). I doubt very, very much that you'll hear any difference from the lossless originals and you'll save a lot of battery/HD wear (assuming it's an HD based ?Pod). Failing that then FLAC->Apple Lossless is definitely the way to fly.