I just got one of those Western Digital 2TB Passport external hard drive. Is it true that if I want the iMac running Lion on it to be able to read and write any files on the drive, and to have files greater than 4GB (which FAT can't have), then it is best to reformat immediately to exFAT before writing anything to this new drive?
I'd use UDF, which also supports files bigger than 4GB, and is not proprietary like exFAT is.
You can create a UDF filesystem using
newfs_udf on OS X 10.5 or newer.
Note that Windows XP can read but not write to UDF, while Vista and newer can read and write.