Here is what Apple says:
To format a hard disk as HFS Extended
Note: Formatting a hard drive will permanently erase all of the data on it. Formatting an external hard drive is usually something you'll do when it's brand new. If you want to format a drive that already contains data, be sure to back up the data to another drive beforehand.
Connect your external hard drive to your computer.
Open Disk Utility from the Utilities folder in Applications.
Select the name of your hard disk in the left column of the Disk Utility window so that it's highlighted.
Click Erase to show the formatting options pane.
From the Volume Format menu, choose Mac OS Extended.
Click Erase (in the lower-right corner).
Note: USB 2.0 hard disks work best with iMovie when directly connected to your computer. Disks connected to an Airport Base Station are not supported with iMovie. USB 1.x disks are not supported with iMovie.
Source:
http://docs.info.apple.com/article.html?artnum=306143