I've searched and searched without luck on this topic, but I have similar troubles.
My 1GB flash drive asks for media to be inserted when I try to open it, seems to think it's a bloody DVD/CD rom or something, when I go to disk management I can't do jack (format or re-partition the damn thing) it see's it as a DVD/CD rom in there as well? Get the same prob on all pc's that I plug it into. I've tried the HP USB Disk Storage Format Tool, which has been recommended on numerous sites only to be told again that there is no media inserted. I think it's had it's day, what ya's reckon?