De-fragmenting it's not recommending on solid state devices or ereaders like Kindle 3. The benefit is little or none, decreasing the overall device's life if this becomes a frequent task or activity.
Also, besides the file system, we do need to take the physical factor into consideration as well. It is true that Kindle uses FAT as file system, but it is not a regular hard drive with heads and cylinders, etc.
Regarding why is FAT, is because compatibility reasons. FAT is currently the only file system that can be mounted and be read by Mac, Linux and Windows. At least, I am not aware of any other one that works for those three major Os.
ext3 or ext4, even Mac's filesystem are better than NTFS. Windows filesystem is horrible! Linux users don't need to de-fragment because it is a very efficient system. I do have a two years old laptop which disk runs as fast as it was running when I installed Ubuntu Linux on it. I cannot say the same for my work's laptop, which runs Window$ Vista and it is already slow and heavily fragmented with a bit more than a year using it.
Go Linux!
