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If you do want to format to WBFS for some reason, you can use the GParted tool to prepare your drive for formatting to WBFS with Cfg. This is the most compatible format type and is required if you want to install GCN games. It can store any Wii games and you can store other files on the same partition if you like. This format type is supported by all operating systems. This won't affect games as they are automatically split, but perhaps it might affect other files you want to save on the same partition The only real negative is that it has a file size limit of 4GB. Your Wii games need to be installed to either a FAT partition or a WBFS partition on the drive. Most external drives come formatted as FAT32 and do not need to be reformatted for use with the loader.
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If you wish to format a drive to FAT32, this tool is recommended if you are using Windows (the partitioning application that comes with Windows won't create a FAT32 partition of a large enoguh size). GParted or any other partitioning application can also be used. NTFS is a Windows drive format standard and Windows probably formatted your drive this way if you use it. It allows for large files and is quite fast. Unfortunately, other OSes do not have full compatibility for this format and it is not currently compatible with GCN games. This is the choice you want to make if you want to rip games for use with the Dolphin emulator as well as play them from the hard drive. Also, Cfg has some problems with case sensitivity when using NTFS drives. If using an NTFS drive, you need to add the following options to config.txt or meta.xml.
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See the Configurable Options page for information on how to do this. If you want to use the Dolphin emulator, you should also add the following option to the same file to get Cfg to write games as.