Hello jshah,
Cross compile is a complex thing, at least for me. Fortunately, I now can cross compile from Linux to produce win32-i386 binaries. I wrote steps and reuse it anytime I need. The steps below has been tested on Lazarus 1.6.0 Debian 64-bit + FPC 3.0.0 on Ubuntu Mate 15.10 64-bit.
cd /usr/share/fpcsrc/3.0.0
sudo make clean all OS_TARGET=win32 CPU_TARGET=i386
sudo make crossinstall OS_TARGET=win32 CPU_TARGET=i386 INSTALL_PREFIX=/usr
sudo ln -sf /usr/lib/fpc/3.0.0/ppcross386 /usr/bin/ppcross386
You may need to change the directory name on line no. 1 and 4.
For Linux 64-bit to Linux i386, there are some extra steps, which I still fail to make it work.