Recovery mode can't read fat32 sd card, only exfat I'm running CM 10.1 (based on Android 4.2.1) on a Galaxy S III i9300. I'running CWM-based recovery v 5.5.0.4. 

I'm dealing with a conflict with my Sandisk microsd 32 gb card. When I format my sdcard to fat32 and run recovery mode, the phone does not read the sd card. However, if I change the format to exfat, the phone reads the sdcard in recovery, but then it won't mount the sdcard when I reboot the phone. I get an "sd card damaged" error. 

Likewise, when I connect phone to PC via USB my PC does not detect the card within the phone; I have to use an sdcard adapter and insert it in my PC to access it. 

When I use CM updater, the system reboots and gives me the following error message under "verifying update package...":


  E: failed to open /sdcard/0/cmupdater/cm-10.1-20130107-NIGHTLY-i9300.zip
  (No such file directory)
  E: Signature verification failed,
  Installation aborted


If I then pull the update from get.cm, I can access it from external storage, but I get this error message when I try to install it:


  E: failed to verify whole-file signature
  
  E: Signature verification failed


Everything is solved by converting to fat32--PC reads card, phone mounts card--except the issue of installing updates or flashing ROMs, kernels, etc in Recovery. This means that when I want to add media to my card I have to format it to fat32 and then re-format it to exfat when I want to access it in Recovery to do things like install updates to CM 10. 

Am I missing something? Is there a way around this?

I read a post on XDA, though I can't remember where, that said that the size of the card (specifically, if it is greater or less than 32 gb) affects what format the S III will read it in. Is it true?
Have you tried considering a mutli-partition SD card? There are a few tools like SDMinste and Partition Wizard to help you create a dual partition setup on your SD card. You could create a small partition to store all your ROMs and updates, and a bigger partition for your user data.

However, there's a slight problem wherein Windows will only recognize the first partition. Refer this well written guide on XDA for a workaround.