Three options for not having to convert your FAT32 drive to NTFS and also not having to truncate the log file on the original to save space:
1. Detach and copy the original mdf and lfd files. This works on my SQL Express between NTFS HDD and FAT32 USB. Is there something that prevents this with Standard or Enterprise?
2. Temporarily set up a trust between servers and copy all objects with data. Actually, you can pipe it all through your Management Studio login via the 'import data' or 'export data' if you have login access to both systems (and of course the correct read/write permissions). Depending on your workstation connection this might be too slow if you are working remote, but it is an excellent option for a workstation on the same LAN as the servers or if you can log in to Management Studio with remote desktop to one of the servers.
3. Generate a script that includes all data. Edit the first couple of lines where the 'create database' commands are located to put the mdf and ldf files on the FAT32. Also change the logging to be simple or bulk instead of full logged. Then run the script with sqlcmd on the recipient machine.
In all three, problem solved - the log file does not need to be truncated and the FAT32 does not need to be converted. If the ldf is too big to do #1 then #2 and #3 will work.
Note that if the script file from #3 is exceptionally large due to the amount of data you might have to be creative in how you edit the first few lines. UltraEdit on a Windows system or your choice of a Linux command line editor should do the trick.
In summary, copying an entire database via the backup and restore method leaves a lot to be desired and several cases where problems can crop up. There are ways that are easier, and sometimes they're faster. Method 2 above, for example, does not first output a backup file that must be moved and then read; the output goes straight into the recipient database without an intermediary file.
To summarize the summary: Use backup for backup and use one of the variety of copy methods to copy.
Should I see if I can get this post put up as an article? lol... (I'd have to flesh out the steps a lot more)