yes only fat 16 and 32, so you have to format a usb drive that way then copy any files over. it is old windows ce tech...
the size of the usb drive is not whats important, what matters is the folder, levels, and numbers of files.
Folder levels: 8
Folders: 512 (including root folder)
Files: 5000
so if you have 1 folder with 5001 files on a drive, you wont be able to play anything over 5000.
if you have folders 9 levels deep with 5 songs on them, the unit will not see any playable files,
etc. etc. and so forth.
many people these days have ipods and smartphones with their music on tap so this issue is not really important, but if you follow those rules above, you should have no issues with playing files (also take note of the encoding).