"Can I have a Master as Fat 32 and the Slave as NTFS?" - yes, if you have an OS which can read NTFS - NT, 2k or XP.
Has the disk been formatted / fdisked? If not, get a boot floppy from click here and use it to partition / format the new disk.
A couple of other questions:
1 - is the 40GB disk jumpers set as slave?
2 - can you try to boot with only the 40GB disk installed?