The problems do exist. Fix them.
It works fine with XP because XP:
-doesn't care wether the device works or not. It just accesses it. You have to scan it manually.
-XP doesn't include a very usable implementation of Limited User Accounts and doesn't have it set to the default. Therefore most people are always running as admin. with Windows Vista and 7 nobody is ever running as an admin (at least not without making a number of changes).
With Windows Vista/7, when you log in, if you are logging in to an "administrator" account, it strips off all the admin rights from the token, and all the programs you run start by default with that token.
When you need administrative permission to do something, such as change a setting, or if a program tries to start itself as an admin, with UAC enabled you are prompted (if the scenario fits with your UAC options). If you then answer Yes, or If it doesn't fit your UAC options (win 7) or if you simply have it disabled, then Windows just shrugs it's shoulders, creates a new Logon token that includes your administrative accesses, and launches the process/launches the process again under that account.
This is where the majority of confusion about UAC comes from. People complain that they cannot access certain files and folders, and then attest that "it says that I don't have permission but I'm the admin *sniffle*", when truly they aren't the admin and simply don't understand the new scheme. (again, not without tweaks, anyway).
The proper solution when this occurs with a USB drive of any description is to take ownership of the folders in question. As you note you've essentially tried that. Not sure why you needed the security tab for that, for me I simply right-click the folder and choose "take ownership" (actually, that's a lie; usually I never need that option because windows prompts me when it's required).
Basically, the issue? the stick is corrupted. Just because XP seems to use it with no problem doesn't mean there aren't any; it doesn't perform any sort of automatic checking to the stick as Vista/7 do.
