You can re-format a thumb drive like any other drive, by right-clicking on its icon in My Computer. If this won't work, try formatting it from Linux with gparted (there's a gparted live CD that will work). Sometimes Windows just won't work with a drive if it's slightly corrupted.
But flash is not eternal. Flash drives do die. The good news is they're cheap, chuck it and get a new one.
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It's probably dead... Try a warranty.
send it back to the manufacturer