ME-1 and ME-500 support FAT32 only.
The maximum volume size for this filesystem is 32 gigabytes.
Some USB drives will work others won't - this is due to changes in USB drive manufacture.
In order to check that a USB drive will work you should choose a USB drive of the spec and format mentioned above and store your config to it.
Put your USB drive in the ME and store your Config or Preset to it.
For ME-1 there should now be two folders on the USB drive: ME1CFG and ME1PST
For ME-500 there will be one folder: ME500PST
Configs will be in the CFG folder and Presets will be in the PST folder.
If the data has been saved to the USB drive then it is known to be working.
You can then be sure that this drive will work for firmware update purposes.