Seems I was updated to ME-007.001.005, just a pity that they didnt ask first. I have reformatted the USB on different computers and different OS, always to FAT32. It fails when plugged with with "Illegal Format". This is a 4GB Sandisk Cruzer and has worked fine up until now.
I tried an older USB stick, 2GB, that came free from a show, and hmm, it works fine.
So? As a strategic upgrade, BMW don't like SanDisk anymore?