For what it's worth, I've noticed that my iFly always successfully detects the USB drive if I insert it with the power off. Powering on the iFly with the drive already inserted leads to a prompt to update.
If I insert the drive with the iFly turned on and "Check for Updates" using the menu, the iFly fails to detect the drive and will eventually time-out.
If you're not already inserting the flash drive with the power off, it might be worth trying.