When you say:
However, I need for the formview to populate the "department"
> field with a list of available departments from datasource2 (different
> database server).
Do you mean populate for example a DropDownList?
> Is it possible to populate the values in an insert formview from datasource2
> and then insert those values into datasource1?
It is quite normal to populate a list control from one datasource and
link the output to another. So the answer is yes.