So just to follow up, I took the plunge and made my own custom ROM with FAT32 and I did notice a speed increase. I'm using a 2GB card, formatted with FAT16.

I haven't tested using my Treo as a card reader yet (my Mac is at home) but I did use SoundRec and verified that I can now record WAVs at twice the quality than I previously could to the SD card.

Before FAT32 I could not record anything higher than 8Khz without skipping, now I can easily use 16Khz, and 20Khz only skips sometimes. Not the most scientic benchmark but it shows real world improvement to me.