FAT32 should be fine. I can see my FAT32 512MB stick almost immediately after inserting it. With software 188.8.131.52736, you should see the attached USB decvice under the Settings > External Storage applet. You can access the USB device from the Shared Folders tab where it'll be listed as a hyperlink that opens explorer to view the contents (in Windows).
Have you tried other USB device types?
Couple things to note about attached USB (or eSATA) devices, if multiple partitions exist on USB device, only last partition will be mounted. Attached USB and eSATA devices are just gross storage devices, cannot be used as part of RAID.