I've never liked the cases that most Flash Drives come in, they're bulky and vaguely ugly, and the nice looking ones tend to be way expensive. So I picked up a generic 8gb PNY Flash Drive from Staples (on sale! :D) for 11 bucks, with the intent of customizing it. This is what I came up with.
Step 1: Materials
Furring strip (or other thin wood, like 1/8" plywood)
Rotary tool (or full drill, if you're very careful!)
Sandpaper (large and small grit)
Step 2: Open the Flash Drive Case
Using a small flat-head screwdriver or an x-acto knife, pry open the flash drive case, being careful not to damage the PCB inside. The Flash Drive will be relatively safe outside of it's case, just grip it around the edges or on the USB connection and set it down somewhere safe.
Step 3: Making the New Case: First Steps
Cut a strip out of the wood that is a little larger than the Flash Drive. Don't worry about making it perfect yet, that comes later. Put the strip in a vice and drill some holes into the top, being careful not to poke holes in the side. It's a little tricky, I broke the wood on my first few attempts. The best advice that I can give you is to just go slowly and carefully.
Step 4: Making the New Case: Hollowing
Once you've drilled your first holes, file out the wood between them with your pin file. Widen and shape the cavity until the Flash Drive will fit snugly. I used the Dremel to deepen and widen the cavity in the thickest parts, being extremely careful not to break the walls, as always. Use the files to flatten the walls of the cavity and create nice, sharp corners.
Step 5: Making It Look Nice
Now it's time to take off the excess wood. Using some very rough sandpaper, or an x-acto knife, or a saw (if you really have a lot of excess), grind (or cut) away at the edges until you have your desired width, then round out all of the corners and edges with sandpaper. If you used furring strip, you should have some extra wood on the bottom that you didn't hollow out. I cut an angle in this and drilled a hole for a keychain. After you have achieved your desired width and shape, take some fine grit sandpaper and go over all the edges again to make everything nice and smooth.
Step 6: Applying a Finish
I thought about staining the wood to give it a rich sort of look, but I didn't have any wood stain lying around and I decided against buying a new pot of it for such a small project. I ended up giving the case a couple coats of satin finish clear-coat polyurethane, which darkened it a bit, and will also help to protect the final product from damage. Some other neat ideas might be to paint it or to carve or burn a design into it.
Step 7: Final Step: Glue
Choose your favorite glue and pour it in! If you poked through the wall a bit, like I did a couple times, and if you didn't want to bother restarting (like me :p), I would recommend wood glue, because it will blend in with the outside of the case. Hot Glue, Shoe Goo, Epoxy, Elmer's, Gorilla Glue, will all work too, just pour it into the cavity, squelch the Flash Drive in, and wipe away the excess that gloops out.