I picked up a Micro Swivel Attaché from PNY (PNY)
It is only 4Gb but is $18 and likely the smallest USB stick you will find. Works great with the Stereo in my TE.
I am currently using a Sandisk Cruiser, but am looking for a very small one so there is more room in the glove compartment. And so stuff in the glove compartment does not hit it accidentally.
You don't have to limit yourself to just thumb drives. You should be able to use a USB hard drive with the JBL system and have TONS of room for music. I'm using a Seagate 320G USB HDD in the glove box and it's been working flawlessly. I use a short USB cord that came with the drive and just plug it into the port in the glovebox and the drive just lives there. Never had any problems with the drive or cord.
I got Sony 16G USB flash drive - works fine and it's quite small. The only think I'm not sure is how those USB sticks and drives are going to work when it's really cold.