Unable to remove virus

Try Trojan Remover, http://www.simplysup.com/ Alot of times virus scanners will pick up autorun.ini files on a memory cards and assume them to be a virus. If Trojan Remover doesn't find anything, then its probably nothing. AVG, NOD32, and Avast are known for false alarms

You have to stop Autorun feature of your windows which kicks in when we connect any new storage device first, then you will be able to format the drive and start fresh.

Steps to remove autorun:
http://support.microsoft.com/kb/967715
(restart your computer first without the pen drive and then start the below procedure)

1. Click Start, click Run, type regedit in the Open box, and then click OK.
2. Locate and then click the following entry in the registry: HKEY_CURRENT_USERSOFTWAREMicrosoftWindowsCurrentVersionpoliciesExplorerNoDriveTypeAutorun
3. Right-click NoDriveTypeAutoRun, and then click Modify.
4. In the Value data box, type 0xFF to disable all types of drives. Or, to selectively disable specific drives, use a different value as described in the "How to selectively disable specific Autorun features" section.
5. Click OK, and then exit Registry Editor.
6. Restart the computer.