NTFS is much better. FAT32 is plagued by performance degradation with larger hard drives and is highly inefficient with large partitions. With a 40 GB hard drive, FAT32 clusters are 32 KB and with NTFS it is 4 KB. Then there is stuff like security, etc. that is missing in FAT32.
Honestly, the only reason I would tell you to use FAT32 is if you have a dual-boot configuration with the old Windows 9x/ME family, which doesn't recognize NTFS formatted drives.