Steve,

"Which is exactly what I was proposing. Anyone ever opened one of these USB wotsits up ?"

Yeah. There's a NAND flash chip, and an ASIC that combines the USB and the NAND flash control. Mine also has a very nice blue LED that blinks when accessed.

If the original poster wants to do what he proposes, he needs to build a USB host controller into his design, or at least look at the USB-On-The-Go stuff. Not trivial.

-a