When is the USB device being plugged in? When the game starts it has to be plugged in not after you start, otherwise you're told to power down and restart the system (or the game via USB loader of your choice).
I wish I could give you a definitive answer to your troubles. Every time I get something new for my Wii it takes 45 minutes plus to figure out the needed IOS versions and/or hacks to use off of GX to get it to work. I've recently updated a few IOS versions through DOP-Mii and the shop channel to get Netflix :D Anyway.........Maybe you could use DOP-Mii to get a list of your current IOS's installed and their versions and let us know what you have on your system. I'll try to do the same when I get time.
By the way I run USB Loader GX with a portable 500GB Toshiba so I don't think that's the problem, but then again I've never used USB CFG (maybe I should try it :p)