That was the problem I was having. USBloader's install through ModMii said I can use Fat32, NTFS or WBFS, and lists pros and cons for each. I finally went with WBFS on my 8GB USB drive, and my daughter is currently playing Rayman Origins
I'm going to get WBFS manager and see if I can get the Wii to recognize my 120GB external drive. So far, it hasn't liked it much.