Quoted from RefugeNate:I actually ran into this problem a couple of weeks ago. I tried 3 different USB drives, all that were formatted correctly (FAT32) and with the correctly spelled file name. I contacted Randy at ColorDMD and he told me that there was a batch of DMD's that had a issues with the USB ground pin having a bad connection (he verified mine was one of them by looking up my serial number). He told me that reflowing the pin with a soldering iron usually restores connection. He emailed me instructions on how to do it and I felt comfortable doing it. Followed the instructions, reflowed the pin and now the USB drive is working! He also offered to fix everything if I wasn't comfortable doing it myself. So if you still can't get it to work, I would send an email to Randy and he can look up your serial number to see if you have one of the faulty displays. Just a thought.
Updating this thread as I just had the exact same problem. I bought a game with a colordmd already installed and attempted to move the colordmd to another game, and it would not do a firmware update. I verified everything was working correctly on the card according to the instructions on the colordmd website, but it just wouldn't recognize the USB stick was inserted. I knew it worked because I had successfully used it on other games, just not with this specific colordmd.
I found this thread and contacted Randy with a pic of my serial number, and he instantly replied with the instructions. Took a few minutes to check (for lack of continuity), reflow the USB ground, check for continuity, and now it was recognizing the USB drive and the firmware update worked!
Hopefully anyone else who has this problem will search on pinside or contact colordmd and not bang their head for hours trying to figure it out!