I've just been using SX Installer + SX Server with USB install which is effectively the same thing as blawar's Tinfoil + Nut server. I was confused by the amount of different title installers and forks of them and which one to use so I just went with SX Installer as I found Goldleaf to be too limited.
FAT32 of course, I don't want to risk corrupting my SD card if I don't have to.
What are you using for USB installs? I know SX Installer (and by extension blawar's Tinfoil) can install large games over USB on a FAT32 card just fine but you're not the first person I've heard of having this issue.