It may depend on the type of partition table scheme you are using (see bottom of page in disk utility for that says Apple Partition Map/APM, GUID Partition table/GPT or Master Boot Record/MBR partition map).
MS-Windows can read MBR scheme only (64 bit MS-Windows supports GPT, according to MS). If you have Apple Partition Map, your disk won't be usable on Windows. I
suspect you have APM partition table and hence the disk utility is not giving the option for FAT32 format, since you can't use it under MS-Windows.
On the Mac side, all 3 schemes are
readable (for
bootability, you'll need APM on PPC Macs, GPT for Intel Macs). Time Machine doesn't need a bootable disk, but I'd suggest APM/GPT if you are using PPC/Intel macs respectively (but I'd think either will work for Time Machine, if you have a mix of Macs).
But here's the catch - Apple says Time Machine won't work with drives with MBR partition map (even though Macs are MBR-aware), so the issue for you is Time Machine's ability to use MBR drives.
http://docs.info.apple.com/article.html?artnum=306932
I suspect unless you are on an Intel Macs (OS X) and use only 64 bit MS-Windows (using GPT)/Itanium, using the same disk for TM and FAT32 sharing between Mac and Win worlds is not possible. Not the desirable answer.
If you do want to experiment, make a temporary setup and try it out on both Mac side and Windows side first (on all your machines), before making a "production" system. You can select the DISK (first line on Disk Utility for that disk, not second line) and click on Options at the left bottom (it might have to be erased first) and then select the type of partition scheme. Note formats like HFS+/FAT32 are a level lower in the hierarchy than partition map/table.
Let us know what you find out/decide?