Under the gnome class installation, LILO is automatically loaded as the boot mechanism. **EVEN ON A FAT32 PARTITION** The result, as I am sure you know, is a beautiful LI for a boot screen, which requires the user to find his system disks and fix the problem with 'fdisk /mbr' provided he hasn't removed MS-DOS from his computer. Remember that some of us like FAT32 under windows/LOADLIN. This is the sort of thing that makes people think Linux is a pile of shit. I'm sure the installer has options somewhere for this, under custom, but that's not the point: it is that the automatic installation of LILO on a FAT32 partition is just dumb.
The Workstation installations in Red Hat Linux 6.2 (both the GNOME and KDE workstations) install lilo to the MBR of the drive and add entries for other operating system which the installer finds on the system (such as Windows) So, the installation is not writing Lilo to a FAT32 partition . . . it is writing it to the MBR of the drive. Not quite sure what problem you are seeing in this particular case, but it is certainly not that Lilo was written to a FAT32 partition.