hey there, ive had a similar issue with my 2tb drive which also was fat32 but my xbox wouldnt read.
i have a windows 7 pc, which i tried several times to (unsucessfully) to format to fat32.
the only solution that i found, which is ironic lol was to use my girlfriends mac to format to windows
once it showed up on my computer, i loaded it up with my content and plugged it in, only to find out...that it still didnt work!
macs give you three types of options to format the drive to, guid settings, master boot record and one other which i dont remember, but to make my xbox recognize it, it had to be on MBR.
since ive not used windows to do it myself, im unsure of the settings which you see on your screen, but if you do see something that allows master boot record, i suggest that, or even if you can use a mac to do it, then it will work
another option, if you dont plan on using the hard drive for anything else other than your xbox and computer, is to get macdrive for windows, pretty easy to find on thepiratebay, and then again if you can use a mac (or there may be a windows version to help you) try to format your drive to HFS+
this is very similar to fat32 as your xbox will still read it just fine, BUT it wont have the 4gb filesized limit. so if you have it set up like that, then your xbox will see it no problem, but you will need macdrive to let your pc recognize it, as HFS+ IS a mac format.
lastly, when you plug in your drive, you may have to wait 30-60 seconds for it to show, ive noticed two of my drives took a while and i thought it didnt work, only to find out a few minutes later that it did pop up and was fine
hope this helps! (and i'm not suggesting 'go get a mac!' haha i hate macs, thats the ONLY thing i use my girlfriends for, is to help me do something for windows) ironic hey?