A theoretical study of vortex-lattice formation in atomic Bose-Einstein condensates confined by a rotating elliptical trap is presented. For the conventional case of purely s-wave interatomic interactions, this is done through a consideration of both hydrodynamic equations and time-dependent simulations of the Gross-Pitaevskii equation. We discriminate three distinct, experimentally testable regimes of instability: ripple, interbranch, and catastrophic. Additionally, we generalize the classical hydrodynamical approach to include long-range dipolar interactions, showing how the static solutions and their stability in the rotating frame are significantly altered. This enables us to examine the routes towards unstable dynamics, which, in analogy to conventional condensates, may lead to vortex-lattice formation.