I had no issues after installing SP 1, tested my USB drives too. Works fine.

For people who haven't installed SP 1:

Download your computer specific Windows 7 SP1 from:
You Must Be Registered and Logged On To View "URL" BBCode Contents...


Scroll down to see the description of each file.

Click on Continue, and it will ask you to download the Genuine Windows Validation tool, don't close the browser.

Download the Genuine Windows Validation tool, run it.

Copy the code it gives you and paste it in the browser window and select the version you want to download, use a download manager to download the file.

For eg: my PC is running 32-bit Windows 7 so I downloaded "windows6.1-KB976932-X86.exe"
It was a 537.8MB exe file.

Hope it helps