Cheers guys. It is FAT formatted. It hasn't changed since couple months back when it was in my A6 and was being read fine. I've also used two other devices (a memory stick and another external hard drive) and neither are being registered. Ironically, power is going to the devices so I know the cable is not faulty.
Audi have suggested I book it in as they said sounds weird.
If I connect up my iPhone using the USB cable, it's not recognised, but if I use the dedicated iPhone connector, it works.
Go figure!