For all those having problems with the useless extra partition used in U3-enabled USB flash keys (the second "CD" mounting full of Windows software), I've posted a detailed solution to the problem on my website. Here's an excerpt with the essential details:
All you need is a Windows machine (I found one which had Parallels Desktop installed and it worked fine) and the Drive Key Boot Utility from HP (45mb download, no registration required).Credit goes to Mark Rushton for finding out about this little tool.
Just plug your dead USB key into a Windows XP machine (real or virtual), run the app, click through all the recommended options, and let the software pulverize the drive's U3 enhancements into oblivion. Don't worry if it takes several minutes (with no progress bar), or if the program stops responding; just wait until it's finished. Go back to the Mac OS Disk Utility, and do whatever you want with your new, fully-functional USB flash drive (which is what you wanted in the first place).
Mac OS X Hints
http://hints.macworld.com/article.php?story=20070803142410952