If you are using the latest versions of the FAT32 driver, it will let you format a drive (HDD, or USB) directly, with no other software required.
You DO have to prepare the device properly (I will talk about USB now), and this is probably what your $20 bought you.
First, you probably want to save any files that may be on the stick, BEFORE you do anything else, so you can recover it, if you want to (use an operating system that knows how to read the stick, or use DFSEE to image it). Next use miniLVM (RMB on the Drives object, and select Manage volumes) to delete everything that is on the stick. It should say that it is all free. If this doesn't work, you probably need to use DFSEE, or the tool in ArcaOS, to wipe the front of the disk (might be a good idea anyway, to remove all traces of anything that OS/2 might not like). Important: EJECT the stick, and mount it again. Next, use miniLVM to create your partition(s) and add drive letters, if desired. Save, and close miniLVM. Now, you can format the partition(s) using the FORMAT command, or RMB on the drive icon, and select Format from the menu. To be sure that it works, EJECT the stick, and mount it again.
Older versions of the FAT32 driver cannot format, so you need to use the DFSEE tool to do it. You can also do it, by preparing the partition(s) as above, then boot to windows, and format it as FAT32.