The problem is that XP FAT is not the same as DOS5, 6, 7 FAT of yesteryear. That is, the format is just enough different from the older versions so that the MPC does recognize it. This is the same issue with Zips, as discussed many times on this board before.
Normally for Zips, you could just use the Iomega Zip tools, which formats it in DOS5.x format which is great for the MPC and PC to read. With a CF reader, that option would not be available.
Alternatives:
1. Find a Win9x/Me system and format the card.
2. Create a win9x boot disk from bootdisk.com. Load a USB mass storage driver for DOS (described at
http://www.winhex.com/replica.html). Format the drive. This assuming your CF reader for your PC is USB.
3. or **AS A LAST RESORT**, Let me know what size your CF card is. I have a solution, but I would need the size first since I may have a custom solution for you.