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I was trying to use FERWE and FERDO to get a Sulfur atom to converge to the correct electronic ground state. What is the exact notation for FERWE and FERDO.

Say, for Sulfur I have 8 bands: first two bands fully occupied(2s and 2px); then two more singly occupied(2py and 2pz) and 4 more empty bands. Is this the right format?
FERWE = 1 1 0.5 0.5 0 0 0 0
FERDO = 1 1 0.5 0.5 0 0 0 0

Or is this one the correct one:
FERWE = 1 1 1 1 0 0 0 0
FERDO = 1 1 0 0 0 0 0 0

It seems a matter of notation and it isn't clear to me what VASP expects. ( I'm using all the other recomendations like ISPIN=2, NUPDOWN=2, MAGMON=2 and also a ISMEAR=-2 calc., small sigma and gaussian smearing!)

FERWE and FERDO have to be given for each state (not band). The occupancies of a free atom are given by Hunds' rule, hence the second choice is the appropriate one. Please note that the boundary conditions of VASP are not the true (shperical) boundary conditions of a free atom in vacuum.
For further reading on the calculation of free atoms, I recommend the first few pages of handsonI.pdf, which you can download from http://cms.mpi.univie.ac.at/vasp-workshop