Hi there

Nice one - it sounds like you have definitely found and picked up an internet nasty....

**I am assuming that you are using a windows based PC - if not, let me know and I will change my advice! **
The bad news - it sounds like not only your flash drive, but also your computer may be affected. I would also consider any computer you have plugged your flash drive into as suspect.
The good news - its not fatal

You should be able to do some careful cleaning and get yourself out of this bind.
IMPORTANT: - do not plug your flash drive into any more computers until you are ready to clean it. This virus may spread via the "auto run" feature built into most removable drives.
Your computer is probably infected, so it will not work to clean the flash drive or format it, as it will just re-infect it after formatting. There are a few things I would try, in order of their difficulty. (easy stuff first!)
1) Try just running an online scanner. This scans from a secure/safe web based computer and scans your local computer via the internet. It is slow and often takes a bit to set up - but it is an easy option. Try
http://housecall.trendmicro.com/ with your flash drive plugged in - don't forget to nominate it as a drive to be scanned. Also
Kaspersky has a well regarded online scanner.
2) I am assuming that you are using some kind of Anti-Virus (AV). With your drive unplugged, make sure that you have updated your AV and then reboot your computer into safe-mode (
step by step instructions). Once in Safe mode, then manually start your AV program (start/programs etc..) and then manually scan your entire computer. If this works, then plug in your flash drive and scan it, then if that works, reboot in normal mode and scan your entire computer again (with the flash drive plugged in)
3) Now it starts getting harder. Forget about the flash drive - you will need a separate clean boot to fix that. Focus on your computer. See if you can clean it with the steps (minus the flash drive) in #2 above. If that does not work, post again as we may need to get serious on that virus!
4) If you can clean your computer but not your memory stick, then you have two options.
a) throw it away and buy another. I know this sounds silly - but I say 2Gb flash drives in the shop for $15 the other day, and I don't know of a single technique that is cheaper than that. (but this is not environmentally friendly of course!)
b) I use a cd-booted operating system that is immune to the virus to boot, then format the flash drive. You can download a self-booting copy of a linux based operating system like
ubunutu or just go to your local newsagent and buy a recent PC magazine that has a linux self-boot CD. (I keep one on hand for just this reason!) Once you have booted into linux, plug in your flash drive (it should open a window automatically) and then right click on the flash drive and select "Format" Format as "Fat32" or "NTFS" file systems as windows can read these ones. Once complete, just reboot your computer as normal and you should be on the way...
Let me know how you go, and feel free to post more questions if you want me to clear anything up.. these virus's can be tricky sometimes

Cheers
RG