I had a situation the other day where I put my USB drive in and it wasn't being fully recognized. It was actually there according to the Add/Remove Hardware program, but it wasn't being assigned a drive. I noticed that this PC had drive letters C:-E: taken locally, and a network drive was being assigned for me to F:. After some digging on the web, I found this page talking about some problems and solutions for USB drives.

My problem turned out to be the one in the section "Drive Letter Conflict with Network or Subst Drives". After I went in to Disk Management and followed the directions, everything started working again.