I tried my 1 GB Kingston DataTraveler and got the performance warning. This even after I formatted it. Moreover, I think the warnings are legitimate as when it was plugged into my Xbox it took *much* longer to bring up the dashboard, lists of games, etc. I mean unbearably slow. Needless to say I won't be using this flash drive with my xbox.
Also, I tried using the technique of selecting a game and pressing Y, but this wants to copy everything, including the copy of the game on my HDD, which needless to say, won't fit. So I still end up having to go into the game and select each save file and such individually and copy them over. Annoying. I wish there were a better way.