Well Initially also own the so called "Delhi/China Made" MP3 Player ...so let me tell you some thing ... i brought a 2 GB one...and packed it full to test it n yes it works just fine with approx 1.8 GB Songs ...Scene 2 ...my friend bought a 128 MB one..and after Pugging in he was surprised to see that its showing capacity of 512 MB ...so like me he also packed it with songs ..and they played fine ..but after some time he had to format it..and funny thing is its capacity is reduced to 128 MB again...so i did a R&D ..and Came to conclusion ...
That i cannot find the Reason 
...so Initially dont go for the Printed Sticker or what the seller says to you ..just simply format it and then see what is its Actual capacity
So Enough of the
Gyan ...now lets look at your problem ..first see if all the files you copied are MP3 file coz these players dont support Real / ogg / AAC etc formats ..also it may be the issue that Being a Dumb n Cheap variant insted of Memory full error its giving you 'format error' ...so best way format the Drive and then check the size...hope it helps