It would probably be better formatting the drive inside the DNS-323 - I'm not saying that you can't format it outside, but, unless you know the specific sizes and types of the partitions created, as well as the files contained in those partitions, you'll probably run into difficulties.
The DNS-323 does not use a single ext2 partition - it creates four partitions, one of which is used for data, another for configuration files, and I have no idea what the last two are used for (one may be swap).