I had linux on the internal flash drive, and was able to mount the external flash card as hdc1 (if I remember correctly). Was able to read and write to it.
In windows 98, that compatibility mode problem comes up under the performance tab of system properties. In another windows 98 desktop system, I didn't have a floppy drive in it, and got the identical message. Then I put a floppy in it and the message went away. So I guess that that's the same problem.
It shouldn't be any problem to back up the internal flash. When I had jailbait on it, I would make some changes, then use dolly to make an image of it on a 32 meg flash card.
And yeah, the /dev/hd_ reference did change as scotch noticed. When booting from the external flash, it becomes hd128 and internal becomes hd129 and vice versa when booting from internal flash.
I think the linksys 100tx works. The linksys usb10bt (which I use - neither version 2.1 or 3.0) does not work. Below is a list of usb adaptors and what chipset they use.