The .wbfs info was a little flawed. Here's the full deal.
WBFS is a format type that used to be the only way to support playing Wii games from the hard drive. It removed all the junk data from the disc data, only storing the game. When FAT32 support was added, the .wbfs file format was created to allow you to have games that were still shrunk with the junk data removed. The .iso is a complete, uncompressed disc image, so the junk data is intact and it takes up a lot of space. You can avoid the extra space usage if your NTFS drive is formatted as 'sparse', but that's if you know what yu are doing.
Thus, you now have a choice between WBFS (which is outdated), FAT32 and NTFS drive formats. You also have a choice between .wbfs and .iso file formats. If you only want to play on the Wii, use .wbfs files on FAT32 or NTFS. If you want to use the same drive for both the Wii and Dolphin, use .iso files on NTFS (they are too large to fit on FAT32).