I've been having issues as well, sometimes it indexes endlessly (and when it's doing that, you can't use voice commands), sometimes it forgets where you left off when you start the car next (which is very troubling when you're listening to a book on CD ripped to MP3), or, my favorite, when the car suddenly says it can no longer find the USB device even though you didn't unplug it (when that happens, the radio turns on at a much higher volume then the USB was playing at, which is a thrill when you're not expecting it) I thought this last one was the result of a bad stick or possibly the plug it goes into, but I've tried 3 different sticks in both of the plugs and eventually get the same results.
My stick is 32GB, I leave it in all the time, and I never formatted it, so I don't know if it's NTFS or FAT, but it sounds like I've got a great starting point. I'll get a 4GB formatted up as FAT and see how it goes.
On a side note, I took my car in for warranty work because of all the hassle with this thing and, after they had the car for two days, I got in it and the same song was playing from when I dropped it off and they said they couldn't find any problems with the MFT. On the two mile drive home the car couldn't find the USB twice.
Thanks dmuscat, I hope this is it!