A format erases all data. Or to be more precise just allows it to be overwritten. Nothing will be retained save the Boot Sector.
If your recovery drive sets up the FAT32 then you cannot change that from the recovery. It will reinstall in FAT32. Unless it gives you an option and not knowing the specific computer I cannot say if you will have the option but you should.
However you can change the format from XP as seen here:
http://www.aumha.org/win5/a/ntfscvt.php