Did you allow the PC to boot into Windows 2000 with the 60GB drive attached to the IDE bus? If so the Windows OS wrote a signature to the drive that will prevent it from working in a Tivo. You should be able to clear it by running a low-level format on the drive. You also do not need to do any other formatting to a drive slated for use in a Tivo. The image restoration process in MFS Tools does all the formatting on the fly so you don't need to do anything else to it.
The error message you're getting is probably due to having your Windows drive formatted with NTFS. It's the C drive that has to be formatted as a FAT32 partition, not the Tivo drive. Get your self a small IDE drive (about 1-5GB) and format it with a FAT32 active partition and use it to backup and restore the image for your Tivo.
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