I actually cannot tell you why formatting doesn't work (I never had issues with this myself), but at least there's a positive aspect with formatting it the way you did now. Windows XP doesn't align the partitions properly, and uses 63 blocks (31.5kB) as the starting offset. Windows Vista and newer use 1MB as the offset to avoid misalignment. Depending on the disk activity, you will benefit from an aligned partition.
André