If I have a currently existing USB drive that has hundreds of customs already on it, I am out of luck though right? I would have copy all of those to my computer and then erase and re-format the USB stick and then copy them back over?
Read the change log for the Xbox update and try formatting a new USB with it. Changed the file system it uses so now it's just a standard FAT32 partition that you can copy to and from using Windows.
Yup, it's what I did but it's worth it for how quick and easy it makes putting customs on your flash drive.