I have not noticed smaller drives helping. I use a 4gb for new music, and an SSD with 4 partitions, so 5 drives presented to the media player. Size varies from 16-160gb.I am in agreement with everyone here the player has bugs that Tesla should fix (or they should put the code out there open source and let the Tesla community with programming skills fix it). But they shouldn't delete the feature.
I use it and it works OK, not terrifically, but OK. I tried putting a whole bunch of stuff on one 32GB USB drive and that scanned forever. Since then I have had much better luck with smaller drives. I do have one 32 GB SansDisk drive that works, but all the other drives I use are 8 GB and I haven't had any issues with them. I only use USB 2 drives, only name brands, and I don't reformat them. Most drives come with FAT32 as the format. Another thing that might mess things up would be to use a drive with some kind of encryption.
I forget all the brands of drives I have, but the one I'm using now is a Kingston 8 GB. The only issues I've had are with the player occasionally forgetting it's place. Most often when I switch to the radio and then come back to the USB. I had it switch to the radio spontaneously when I opened a door other than the driver's door.
To get around the resetting the track to the beginning when listening to an audio book, I just memorized where I was in the book before getting out of the car and reset the player to that spot when i continued. I was on a road trip and only stopping every 2-3 hours, so it wasn't that big a problem. It would be far more annoying if I was running around town and driving much shorter legs (over the course of a day or multiple days).
The bugs are frustrating, but there are worse things in this world, like driving an ICE...
And I am doing shorter stops all day. If I tried to memorize the place every time, I wouldn't have enough brain power to do my job.