I am a citizen of India. Worked in US on H1 visa for two years and then 2006 & 2007 was in France studying for a degree in Business Management. In 2007 I withdrew $36000.00 to pay partly for my education expense from 401k account established while I was working in USA. I know the amount is taxable, but do I pay 10% penalty on $36000.00 or less education expense or none of the above.

Yes, early withdrawal from 401K is subject to 10% penalty and the entire withdrawal is taxed as your income. The rule is same for residents and non-residents.

The waiver of the 10% penalty for early withdrawal applies to withdrawals from an IRA, not a 401K.