Wait... is your SanDisk USB disk one of those SanDisk drives with that horrible U3 software installed on it?
ok, this really weird and embarrassing. I tried a generic 1 gig flashd. and the mcboot worked like a charm. I really cant believe crappy generic flash disk works better then a SanDisk.. way to go sandisk.
It hasn't happened to me yet - but it's been reported (by some) that the U3 software may cause PS2 homebrew that accesses the USB device to malfunction.
If you have that U3 software on your Sandisk? If you do, try wiping it with SanDisk's U3 remover (Make sure that it's meant for your model!!).
SCPH-10000 S. MINOKAMO v1.01 (Defunct)
SCPH-10000 S. KISARAZU v1.00 (faulty)
SCPH-15000 S. KOHDA (With warranty seal!) :D
DESR-5100 S. EMCS