My 2GB kingston flash drive is not being formatted in windows XP OS !!
When I try to format it, it doesn't get formatted through windows standard formatting option or even in Partition magic 8.0 (DOS based version).
Try the HP USB Disk Storage Format Tool (it works for all USB storage devices).
This tool is particularly handy if you want to format large HDDs using the FAT32 file system or if you want to create a bootable USB drive.
If your flash drive isn't formatting, that's a good indication it's died/close to dying. I'd highly reccomend getting a new one, and copying all the data from your current one. USB drives aren't worth repairing, IMO, and are certainly inexpensive enough (Although it's awful environmentally - is there any way you can re-purpose it?)
May be you should try formatting on another machine which have different OS.My USB made the same in the past and I could format it on my friend's laptop.
I'm afraid your flash drive is broken. If it's not very old, maybe you can get it swapped where you bought it?
That said, maybe there's another thing you can try:
Do you see the flash drive in Windows Disk Management (My computer -> right click -> Manage -> Storage -> Disk Management)?
If so, what happens if you format it from there? Or otherwise remove and re-create the partition?