As I am seeing things here, the size limitation for a FAT32 video file is 2GB.
At least, when I go to transfer a file over Ethernet to a FAT32-formatted drive attached to a PC, that transfer stops when the file on the hard disk reaches 2GB in size.
As I recall FAT32 has a 4GB limit but the AVI file type has a smaller - 2GB - limit on FAT32 partitions.
For reasons I don't understand, it seems to be the case that the .mp2 files that the recordings are saved as are being treated as AVI files (perhaps this is a quirky Windows Media Connect thing) and fall foul of the 2GB limit.
So, in answer to your question - you have every right to be confused.
I have already asked Netgem (the iplayer's maker) how it proposes to work around this problem when HD Freeview transmissions start - and I await the company's reply.
But, unfortunately, it seems to me that this 2GB limit is already a barrier to transferring movies to drives that are formatted at FAT 32 - because the barrier is breached with standard-definition recordings that are longer than about 70 mins.