USB flash drives have been so common some of manufacturers have even gone so far as to try and make them fashionable accessories. They are great, I have a few myself. The security of the drives can be an issue. With most of them if you were to lose the drive then there is nothing to prevent someone else from accessing all the data that is on the drive.
There are a couple of solutions for this. One is to use my favorite free and open source cryptography utility - TruCrypt. With TruCrypt you can create a file on the drive that is a certain size and then it is encrypted and you have to provide the correct keys and password in order to mount the file. Once mounted this file looks like another drive on your computer and you can copy things in there (like a file with all of your passwords) and it is completely secure. It does mean that you have to install TruCrypt and your keys on every PC where you wanted to access the data on the drive, which makes this a solution a bit difficult to use.
Another far more practical although expensive solution is a relatively new product called IronKey. This thing is like something James Bond would have in his spy arsenal in order to keep the Queens secrets safe from the bad guys. IronKey is a USB flash drive that is fully encrypted with an AES 256 bit key. The hardware is designed to be tamper resistant, allows only 10 attempts to unlock the device with the correct password before permanently erasing the drive and making it a doorstop. It also has a lot of capabilities to be used with two factor authentication, although there isn't a lot of support for using this device since it is so new. The device is upgradeable through firmware updates, which could present security problems, but the IronKey guys have made the firmware have to be signed by cryptographic keys which are gain validated in hardware so that there isn't any opportunity for someone to put malware or override the security of the device with a fake firmware update.
Someday I think I'll get one of these things, but for now I'll stick with the TruCrypt solution on my SanDisk 1GB USB drive since it is working for me.