1.
Is it formatted as Fat or ext? if you formatted it as fat, chances are you are mounting it in such a way that only root can access the device and the filessystem.
/dev/hda6 /mnt/fat vfat users,defaults,umask=000 0 0 <-- this should be what your fstab entry looks like. It mounts the device with the mask of 0000, aka mod rules of 777.

2.
http://www.pendrivelinux.com/all-in-one-usb-pclinuxos-minimezip/

I am thinking about making USB bootable sticks at next westside meeting...