Something that might be interesting to those you playing with a card like this in a PC/XT system: FreeDOS 1.3 added support for FAT32 file systems in the 8086 version of its kernel. (Previous versions of FreeDOS supported FAT32 only on 386 systems or better, and MS-DOS 7 requires a 386 as well.)
So if you use FreeDOS 1.3 or higher, you should be able to use a FAT32-formatted USB stick in your old machine, without having to create smaller partitions and/or using FAT16. Theoretically, it should work with partition sizes up to 137GB.
I'm curious about people's real-world experiences with this, though.