If you have not yet returned the reader, you may try this. I had a similar problem with my PRS-700, but the problem occurred when I had pulled the USB connection from my laptop a tad too quickly. I had to connect my reader back to the laptop and run checkdisk on it. Since I had windows XP running on my laptop, I used windows explorer to navigate to the reader flash drive. You can use the windows explorer, to right click on the Removable device and click on properties. In the tools tab, run "Check now" under the Error-Checking Section. Be sure to have the "Automatically fix file system errors". This fixed my issue. The Sony support had also given me the same reply you got. Since my issue got fixed, I did not have to send my reader back to Sony.
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