I had the exact same thing happen. I formatted the SD card like 5 times, both on my laptop and in the eDGe itself and it just would never recognize it although it was a card I regularly used in a camera and my laptop read it with no problem. The second card I put in worked fine the first time.

The only thing I can think of is that the two cards were of very different sizes (one was 2GB and the other was 8 or 16GB. The 2GB was much older and the larger was newer). I can't remember which card worked and which one didn't, but I think it was the 2GB that didn't. So definitely try a couple of different cards in the machine, and then collectively maybe we can figure out which cards it does and doesn't like.

Note: although you do have to have an SD card inserted to do the USB transfer, I was able to USB transfer files even with the SD card it didn't like. It was only getting the eDGe to read the card directly that I couldn't do. (I had the greyed out options, just like you when I looked at the device itself, but the card seemed to work OK as being just the card that needs to be inserted while you transfer files with the USB cable).