This can happen if the USB stick is already open or being accessed by Windows, as the drive becomes locked and the Recovery Backup Wizard is unable to access the drive properly.
When Error formatting USB Stick is displayed on the screen, the program accessing the USB Stick should automatically close.
Therefore, re-running the Recovery Backup Wizard will allow you to continue with the creation process.
To prevent this message appearing please ensure that no programs are accessing the USB drive before opening the Recovery Backup Wizard.
Note: In Windows 7 look for the highlight box around the folder icon on your desktop as your USB Stick may have auto run when you plugged it in.