I have a Compaq 8710W running windows XP pro sp3. I am not sure what changed but about one month ago it stopped reading any flash memory - USB or Sd cards, external hard drive, etc.
I can "see" the removable disk in the directory tree in explorer, but when selected an error message is displayed "The disk in drive F is not formatted. Do you want to format it now?" When selecting Yes the format control panel pops up. The capacity is correct and the file system shows FAT32 with Default Allocation size. When I click Start the progress bar goes to 100 but Windows returns an error "Windows was unable to complete the fromat."
This occurs with three different USB memory sticks and two different SD cards. They are visible in explorer and through disk manager which shows the correct volume size and it's healthy. But I cannot explore them. It repeatedly asks to format but it will not complete this.
To check the hardware I swapped hard drives with an identical laptop and the problem followed the hard drive. My PC was able to read the flash content with a colleague's hard drive but his could not read with my HD.
In safe mode, I was able to format and then read the USB drive, but this happened only once and I cannot do this now. I have scanned for malware with Malwarebyte's anti-Malware, Super Anti Spyware and Norton end point but nothing was found- even in safe mode.
I scanned with sophos anti-rootkit, but did not find (or understand) anything.
Since you did a pretty good test with swapping the full drive, you know it's not the laptop hardware.
First try to re-install the chipset and any card reader, usb drivers. If that does not work, try a BIOS update. If that also fails, re-install Windows and then re-install the drivers for the system. You can try to do a Repair setup that may work without causing too many issues with needing to re-install programs, but may not fix the issue.