I'd suggest not directly using the USB drive, but rather working on your hard drive and afterwards copying them to the USB drive, or if they're on the USB drive to begin with, copy to HD, do work,and copy back.
The FAT32 driver isn't the best and also it is not a good idea putting them in the root directory, IIRC, there are limitations that aren't there if using a subdirectory.
Run mem /v at a prompt to get an idea of your memory situation.