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HDD file format

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Hi all,
I am a complete novice ... so bear with me ....
I want to change my C drive HDD for a larger capacity HDD and I am researching how to do that. However I am just examining my current HDD's, internal and external and have noticed that my C drive (internal) and my D drive (internal) are in NTFS format whilst my external G drive is in FAT32 format. Does this matter or does it need to be changed.
I am currently using Vista 32bit, but want to upgrade to Windows 7 64bit once I have changed the C Drive.
Also could I re-use the old C drive disc as another internal HDD if I wiped it clean.
Dependent on your answers, I will probably be asking how to do all of these things !!!!
Thanks

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I would reformat the external HD to NTFS. That would allow you to save backup images larger than 4 GB to it, without them being split.

Sure, once you install a larger primary drive you could use the old drive as a secondary drive. Reformat it before installing, as you should never allow Windows to boot with two OS drives attached.

Thank you Tuttle
I am formatting the external drive as we speak.
I just pressed the OK then noticed the "Allocation Unit Size" which is showing 4096 bytes .... should i just leave it at that or change the size or has this nothing to do with the 4GB that you mentioned ?!?

Default is fine.

Thank you very much for your help .... the drive seems to be formatting slowly in the background ... so I'll see what the outcome will be ... fingers x'd