MauriceWe ain't done yet

but I must say this is challenge. I am now back thinking you may have a USB port that while it can boot from it it only will do so from a FAT partition. I am not sure but I think you have proved it will not boot from a FAT32.
The last
fdisk -l you reported was one that conforms to the new
fdisk (it started at 2048) and if you use Dolphin or Konqueror you can see what is on the USB key. I think we can say that as a storage element there is nothing wrong with the USB key. It seems there is something funny in the boot process, from what I have stumbled upon on the internet when looking for USB oddities some people have reported that they needed a FAT partition at the beginning of the USB key else no working. At the time I was not interested int that, so I did not make a record of where I saw the information.
If you have the time and inclination I would like to try and prove or disprove the FAT theory ?? Even if tht fails I am not done yet

(but close)
As you don't have an 'ordinary' USB key to hand it will require you reformat your 16 GB USB key so there is a FAT partition at the beginning. I have no idea what size is required. I will suggest about 1 GB and make it
FAT16 then make the rest
ext3At this stage don't bother installing anything to the drive. Just try to boot to it and see what message you get if any. I am hoping it will complain about a missing OS but it may also go back to your normal PCLOS menu if it does that will make it tricky.
Before you do though I will outline my backup strategy. I think it could be tested with your USB key as is. The thinking goes, there is nothing wrong with the Linux system on the stick and therefor it can be kickstarted manually with GRUB. Because I am a bit dim in the GRUB area I have made a special GRUB only boot disk, I think it is about 5 MB with that disk I can go and find all my 15 OS and point to the one I want started. Something similar I would think can be done on yours.
I think that using a liveCD and with the USB key installed the OS on the USB can be started but I have not yet tested this but I will as I have an old zen boot USB key. This will tell us that your port is capable. Really is belts and double braces trying to figure it out.
First though let us know if you still have the energy and spirit to keep going would be very nice to see if we can get to the bottom of this. Then we will go from there

Any one else get better suggestion? ( Apart from handing in the towel)