I have an 8GB standard size flash card in the removable slot that I reformatted to fat (with the device) about 2 months ago. I listen to music and podcasts from it all the time. It's never given me a problem.

Actually, I used to have other canola related problems when it was formatted to ext3. Canola would just stop playing songs randomly and would have to restart canola to be able to access the files again. And sometimes the drive would become unmounted somehow and was inasccessable until I restarted the device.

The SD card seems unrelated.