According to this article: http://technet.microsoft.com/en-us/library/bb933993.aspx
the FILESTREAM type is used for NTFS systems. Does that mean it can't be used on FAT systems?
Correct, it means it can't be used on a system drive that is FAT. It must be used on a drive that is NTFS or you will get an error like this:
Msg 5134, Level 16, State 2, Line 1
The path that is specified by 'Z:\FATFormatted\yourfile.jpg' cannot be used for FILESTREAM files because it is not on a supported file system.