chadd,
1. It does not initially need to be FAT32, but the SD Card does need to be reformatted to FAT32 to use it with the TinyTV. As a general rule, you would want to reformat it when you first get it since reformatting clears all files on the SD Card.
2. The settings file will be regenerated by the program so there is no need to, but if you have changed some settings and you like what you have, it would be simple to copy and move the settings file over to keep the settings on the TV consistent.
Best,
Réna