Any USB should work. I think it uses FAT32. So you need to format it in FAT32.
1st issue: I'm guessing you have the MyFord system (no touch). Hit the menu button -> goto source menu to set the source to usb if you haven't already > then go back and go to the Play menu > I think if you scroll down you have the option of navigating by artist, album, genre, and folder. Also there is no way to go back up a level after you've selected a song(that I know of). If there is, please let me know. It would make this more bearable. At least the sync system recognized most of the artist/albums I ask for.
Also, the way mine is set up is through Directories too. (/root/<artist>/<album>/song)
No problems with this for me and it recognizes artists and albums just fine.
2nd issue: No idea. This hasn't happened to me yet. It could be something with the USB synchronizing. Try a different thumb drive. Do you take the thumb drive out or leave it in?