You don't actually say that you're having a problem, but I assume that you are.
At the risk of repetition, MS-DOS could mean either FAT or FAT32. Regular Mac software does not have the ability to specify FAT as a format type – you have to use a PC.
For the reasons you mention, your 128M card is probably FAT. But you can't be sure. If you are having the problem where the update fails during "V2.04 Software Update Utility" you probably have a card problem – there are other possible issues besides FAT32.
Cards are cheap enough that a new one is probably affordable. But, you can't buy small ones any more, so a big one may also be FAT32. And so you go round again.
Probably the only answer is a card reader on a PC. The irony is that V4.0 fixes all these problems !!