It's probably set up as a Master Boot Record volume map which can only then be formatted to NTFS/FAT (MS-DOS). Strange I've typed this three time for three different posts tonight...
Do not just go to the Erase tab in Disk Utility but rather head over next to it in the Partition tab. You'll have to have the drive selected as opposed to the volume in order for this (select the one that says something like IOMEGA KJH798 and not the one below it).
When you change the Volume Scheme pull down menu to 1 partition (or whatever), it will unlock the rest of the options in the window, and allow you to change the partition map scheme (through the Options button at the bottom) to GUID or Apple Partition (GUID if you have Intel, other if PPC, it gives you a description). Select the option for your machine (either will work, as it only affects bootable drives, external or otherwise) and then hit OK. Then head over to the Format pull down menu on the right side and select Mac OS Extended (Journaled) and then click apply at the bottom. This should correctly format your drive (Mac only in this case) to use properly with your machine if something isn't wrong with it.