FAT32 should show as a format choice on external USB drives in Windows 7 format tool. It defaults to exFAT but the drop down box should have FAT32.
You can use
this program to format FAT32 hard drives under windows.
However given the limitation of FAT32 you may want to look as using the Apple HFS+ file system instead which is supported by the ATV. To format a drive with HFS+ under Windows and read the drive you need to use
MacDrive.
If you dont need to access the USB hard drive again from Windows you can use the free
Gparted tool to format it with HFS+.