The good news is that both Windows XP and Windows Vista can read and write files to hard disks formatted with Fat 32 or NTFS, so the Iomega disk should work perfectly.
Most external hard disks come ready formatted in one of these two formats. Fat 32 is best if you intend to use the disk to share files with people using other operating systems but NTFS can handle larger files than Fat 32.
Fat 32 cannot cope with files larger than 4GB. As a DVD image file is 4.7GB, this can become a problem.
It is possible to change the formatting used, but it is best to leave the drive as it is.