Question: How should I format my hard drive for use on both a Mac and a PC? ?Is there any way I can also use Time Machine with this drive?
Answer: Format HFS+, use as time machine. On your Windows system, install non-free MacDrive and you can read it. http://www.mediafour.com/products/macdrive/
We do this here for some of the drives that arrive to us from external vendors that are all in HFS format (and some windows people need to read it).
Or, you can just share it from your Mac over your home LAN (not exactly that useful, but..)