I formatted the drive to ext4 and it still wouldn't work, but now I was able to chown /mnt/bitcoin so I finally started IBD!!
That is a very strange outcome... when you "formatted" it, did you completely remove all the partitions and start from scratch, or did you just format the existing partition? 
I'm guessing that the old vfat system just wasn't handling the file permissions properly... glad you at least managed to get the IBD underway!
