> allow the creation of a new FAT-32 image file of a specified length given a target directory [emphasis added]

I think that's your problem: file systems are supposed to go onto a preexisting block device, which you'll need to create seperately. For example, on my system:

  dd if=/dev/zero of=/tmp/foo.dos bs=512 count=128K
  mkdosfs -F 32 /tmp/foo.dos

Once you've created the filesystem, fill it with:

  mkdir /tmp/foo/
  sudo mount -t msdos -o loop /tmp/foo.dos /tmp/foo/
  # dump stuff into /tmp/foo/
  sudo umount /tmp/foo.dos # or /tmp/foo/
  # filesystem is in /tmp/foo.dos