The actual capacity of the USB device is 8GB, but after using it as a live-usb device the available memory has reduced to 31MB. I tried formatting the device but that does not solve the problem.
Any ideas?
The chances are that the drive has been partitioned. Right Click computer > Manage.
Go to Storage > Disk Management.
Locate your USB Drive and delete all the partitions and volumes on it. You should then be able to create a new single partition which uses all the space on the drive.
Hope this helps.
Check out the partitions on the Flash device. Blow away all the partitions and repartition it.