So no one had this issue besides me? Some Win7 access authorizations settings wrong on my machine? I couldn't figure it out yet, also it is a fresh install of the OS...
You might try formatting the USB key to FAT32. Or NTFS. Or just any reformat. Sometimes, the way the key is formatted causes seemingly-artificial restrictions on I/O. I've seen it on Linux a dozen times. Doesn't surprise me Windows would see the same thing.
Cool, that sorted it out. Looks like the issue only arises on NTFS formatted sticks, no problems with FAT. Thanks!