I would suggest that you do factory reset on the reader. I had a literati that had a similar problem. My computer recognized a storage device but said that it wasn't formatted (I run XP). Oddly, the device also didn't have the promised 25 preloaded books. I did a factory reset on it and now my comp doesn't complain that it isn't formatted and the 25 books showed up. (Warning! A factory reset will delete everything off the device but the preloaded books. Make sure to have all books backed up!)
Also, I think that the support
here (literatireader.com) would be a better place to submit questions on the reader itself.