A customer comes in and cashes a check on his account here. Is that considered a withdrawal (box 34) or a negotiable instrument cashed (box 32)? Or would you check both?

You can check either, although I'd recommend box 34.

If an on-us check is cashed for a payee who is not the drawer of the check, I'd check box 32.

I would recommend training your employees and being consistent with whatever you choose to do.