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In theory, 32GB is the maximum size for any Fat32 partition, but Win2k and XP somehow manage to deal with partitions bigger than this which is probably why PM allows bigger partitions.
Lets sort this once and for all 32GB IS not the largest only if you have 2000 on, its all to do with the size of the clusters per sector BUT I agree its not the best NTFS is for many reasons.
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FAT32 Features
FAT32 provides the following enhancements over previous implementations of the FAT file system:
FAT32 supports drives up to 2 terabytes in size.
NOTE:Windows 2000 only supports FAT32 partitions up to a size of 32 GB.
FAT32 uses space more efficiently. FAT32 uses smaller clusters (that is, 4-KB clusters for drives up to 8 GB in size), resulting in 10 to 15 percent more efficient use of disk space relative to large FAT or FAT16 drives.
FAT32 is more robust. FAT32 can relocate the root folder and use the backup copy of the file allocation table instead of the default copy. In addition, the boot record on FAT32 drives is expanded to include a backup copy of critical data structures. Therefore, FAT32 drives are less susceptible to a single point of failure than existing FAT16 drives.
FAT32 is more flexible. The root folder on a FAT32 drive is an ordinary cluster chain, so it can be located anywhere on the drive. The previous limitations on the number of root folder entries no longer exist. In addition, file allocation table mirroring can be disabled, allowing a copy of the file allocation table other than the first one to be active. These features allow for dynamic resizing of FAT32 partitions. Note, however, that although the FAT32 design allows for this capability, it will not be implemented by Microsoft in the initial release.