I have the very same problem lettuce's having. I can't get CFG USB Loader to load files (config/settings) from HDD. I checked both config.txt and settings.cfg on Notepad and they show "device = USB". I can't get covers, update theme, CFG or anything else without SD card inserted, because it'll show a SD:/usb-loader/etc. could not be written/found (can't find the exactly word). If I go to Global Options, it shows USB as device chosen and FAT1 as partition (FAT1=FAT32 400GB for .wbfs and usb-loader, FAT2=FAT32 4GB simply a SD card backup -- NAND, keys.bin, bootmii, etc. and NTFS= .ISOs and some Windows related stuff, like backup of my apps setup.exe's, etc.). No matter what I do, everything is read or written from/to the SD card. I installed Wii Sports and it was installed to my SD card. Luckily, it was just 300mb and could fit into the SD card. This brings me to the next problem...
... I can't install SSBB no matter what. I changed IOS 249 to 222-mload to no avail. I always get an error while "Opening DVD". Is it because it's dual layer disc?
and I had problems with cfg61b5.dol as well. CFG USB loader disappeared from HBC and the forwarder channel would give me a stack dump error. I went back to the previous version (I had softmodded just 2 days before using ModMii, so bunch of cIOS, Priiloader, bootmii, etc. installed) and everything is running fine again.
Furthermore, I also get the mount device error if I do not use a SD Card. In a nutshell, CFG USB Loader insists on using SD before USB. I used GAF's usb-loader tutorial, so I checked every line in the config.txt and settings.cfg for what they do and manually changed/inserted them (I find it easier than use the Configurator, goes figure...) but CFG USB Loader refuses to load anything from USB other than the theme. One extra problem is that I can't get any music to play, although I have several .mp3's in the music folder and set "music = USB:/usb-loader/music, 1" (I also tried SD instead of USB) in the config.txt.
Big help need here.