Will re-formatting a hard drive permanately erase all data on it?

Yes you are correct, playstations use a FAT32 format so the 1TB drive would need to be reformatted in FAT32 which would erase all data. You may be able to move or resize the exsisting partition using Partition Magic and create a new FAT32 partition on the 1TB drive.

If you format the disk, you will lose all data on it.

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