I don't think the question about FAT32 has been answered. If you have a Windows PC you can check in Windows Explorer how it is formatted. Open up the view where you see the disc drives listed, right-click on the "Removable Disk" icon representing the SD card, and select Properties. Near the top of the Properties window it will indicate whether it is "FAT32" or "NTFS".
If you need to format it, there is a "Format SD card" option on the Hero under Settings->SD card & phone storage. I presume that this will format it with the FAT32 file system.
I have just inserted the microSD card that I have bought. It is 8GB and type 4. So far it seems very slick, but bearing in mind the above discussion I imagine that is because at present I have copied relatively few files (especially photos) onto it ... many fewer than I had on the original card. This would bear out the premise that speed is affected not by the size of the card as such but by the number of files (media and documents) stored on it.
Rather alarmingly, when I tried running Albums and Music immediately after inserting the new card they both said that they couldn't find any of the photos or mp3 files that I had copied onto it. Luckily, after a shortish time both Apps woke up and started searching for and found all the photos and music.