I got a JTag from a member on here, and while I wait for a replacement DVD drive, I put XeXMenu 1.1 on my HDD using Xplorer360.

It boots, but it won't detect my 1TB External My Book. I formatted it to FAT32 using Partition Magic and it won't detect the drive at all. I had it in the back USB port.

I'm trying to format it with Fat32Formatter now, but here's the kicker: my Xbox itself DID detect the drive(it came with 9199 dash). Is there anything special that I have to do for my USB drive in XeXMenu(other than putting my games in the "games" folder)?

There's nothing special in XeXMenu you have to do but you might want to consider formatting the drive to HFS+ as XeXMenu can recognize it and it will likely be quicker that way.
Also try a different usb port and see if that makes a difference