Are you using the 1tb drive as a usb drive? usb drives can't be formatted (as far as I know anyway) on the 360.
Use a disk manager (I used EASEUS Partition Master), which allows you to format the drive to FAT32 (takes moments too unlike windows format which can take hours)
Do you have a regular 2.5" 360 hdd for the xbox? As in to go in the side port?
You can run xexmenu by either copying the relevant files to that HDD, or Memory Unit, or alternatively burn the Xexmenu to cd and launch from CD. I personally launched from CD to begin with to test, and then used xexmenu from the cd to allow me to copy the files to the main 360 hdd