Don't let them. NTFS and other security measures should prevent this.
My main issues with them are data security - staff taking information off site that can easily be lost forever, or worse a kid finding it and having access to confidential info - data protection out of the window.
They are 100 times more reliable than floppies!
Reliability, seen too many of them fail, prompting much hair pulling because they never back anything up.
!!No floppies either. Good grief. Are you a secondary? I think it is recommended by Becta that pupils should be allowed and enabled with the ability to take work home. It sounds like you are creating far to much work for yourself like this. I really think we should be pushing the positive use of technology, not banning it for conveiniences sake. Its not a dig at you so please don't take it personally but there is a lot of tin foil hat wearing taking place with regards to USB drives, and I'd like to set the record straight. besides, there is no storage medium which is 100% reliable, be it floppy, USB drives, CDRW or external hard drives, but to ban them and remove their functionallity for the sake off a few fixable issues seems excessive to me.
Students are prevented from using these (and floppies) via a GPO, they have other methods of accessing files off-site, but if they do bring one in, they are allowed to bring it to us to load the information.