When I insert FAT32 USB stick and open Files, then right-click on that drive and select "Format..." nothing happens - the menu stays open and no other apps or windows pop up. I assume this isn't intended behavior.
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It looks like Nautilus calls out to gnome-disks via command line to do the actual formatting: https://gitlab.gnome.org/GNOME/nautilus/-/blob/master/src/gtk/nautilusgtkplacessidebar.c#L3060-3083
I'm not seeing anything obvious on either issue tracker (for either Nautilus or gnome-disk-utility) about problems formatting with FAT32. Hopefully that can at least provide some direction.
Maybe trying to use the same command that they do in the terminal will yield more useful information, as long as you're careful to use the right device.