I've found that the right-click context menu of Windows Explorer in Windows 7 is a little flakey when you use it with disks (ie, the disks shown in the "Computer" view). If you don't see the "Format" option when you right-click on a drive, right-click on it again and it will probably show up.
If the drive doesn't show up in the "Computer" view of Windows Explorer, then you'll have to use Disk Administrator:
Click "Start" --> right-click "Computer" and select "Manage".
Click "Disk Management" in the left pane.
Scroll down to the BOTTOM of the MIDDLE pane.
You should see your new disk there with a label such as "Disk 1" or "Disk 2", etc. Right-click on the label in order to create a new volume (which partitions the drive) and then again to format it.
Once it's formatted Windows will assign the next available drive letter to it and then it will appear in Windows Explorer.