I am trying to create a multiboot flash drive, but I don't want to use fat 16 due to the huge performance cliff between fat 16 and other file systems like ext 2 or NTFS. I need to have multiple linux distrosl on my flash drive and choose which one I want at boot-time (preferably grub2) All of the tools I found online require you to use an existing fat 16 partition.
Use a virtual machine or other *nix install to install GRUB2 on your flash drive. NTFS may work - there's a module for it in GRUB2, but you're right - most tutorials use VFAT.
Try MultiUSBBoot, Make a ~10mb FAT partition just for GRUB2, then format the rest to EXT2 or NTFS.