File and directory names are most definitely case sensitive.
It's worth noting, too, that when you open Terminal, you start out in the current user's home folder, which typically has the path "/Users/[username]". You can always get back to this home folder by typing "cd". The Desktop is a subdirectory inside the user's home folder; you can navigate there by typing "cd ~/Desktop" (the ~/ is a shortcut that stands for the user's home folder).
The Terminal in Mac OS X is basically a Unix shell (I think it's bash by default, but that doesn't really matter for this project). If you're not familiar with Unix or Linux, you're probably going to be confused by a number of steps in the FAT32 conversion. You might want to find a quick Unix web tutorial so you can get the basics of navigation and file management on the command line.