Then follow the hacking guide (https://switch.homebrew.guide/) to create a new emuNAND and a new installation of Atmosphère and Hekate (if you like) DOWNLOADING NEW RELEASES from his corresponding GitHub repositories
Install sig patches and try to install and run any NSP.
Then when all works fine. You can restore your backup and try again
At this point it doesn't hurt to start from fresh since you don't know what was your error, you need to know what the error was pointed at to be able to fix it, should specific the card also, the h2testw test was to test if your card was bootleg or not, may as well specify your card also.
Im on FAT32 and no problem with vanilla atmosphere, I do remember some people did get problem with sdsetup on fat32. Perhaps problem with the files they created. Remember to read Atmosphere 1.0.0 changelog to understand the change of fusee-primary and fusee secondary to fusee and package3.