I contacted Olympus about this very issue. The maximum capacity of xD cards my camera would recognize was 256 MB. According to the Olympus rep. the camera does support up to 512 MB, but required a firmware upgrade and needed to be sent in for this. My wife's Canon camera had no such limitations and even has better quality.
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You may need to call Fuji and see if the 2gb xD card is compatible to your camera model. It's possible that Fuji can provide you with steps to make the card compatible to that camera. Fuji telephone number is 800-800-3854 option 1
If you like the camera and XD cards then I would use the USB cable to download the photos from the camera. When you plug the USB cale into the camera and then into the computer, the computer should recognize the camera and set it up as another disk drive. Copy or move the pictures from the card to your Photo location. Use the "Safely Remove Hardware" icon in the system tray to disconnect the camera and your done. The camera can format the XD card and the computer can read it through the camera.
The problem is that the largest xD card that your camera can support is an M or H 512mb card. The 1gb or 2gb card is not compatible. The camera came out long before these cards were in existence and therefore the firmware in the camera cannot support storage that large.
Just had the same issue today. The Olympus Helpdesk told me that the fact I had printed one of the picture from the Xd card in directly inserting the card in the printer slot for Xd created the problem....
The guy from the Helpdesk strongly recommended to transfer the pictures from the camera to the computer exclusively using the USB cable of the camera.
In the end I have saved all my 505 pictures in using the Smart Recovery from PC Inspector but why the hell this problem only happens with Xd cards?
Have you sent the camera to olympus for the free upgrade to enable the xd 512gb and 1gb card? go to the olympic site and then to their support page for c-50zoom and look for instructions for the upgrade,you must have the product ID from the package and the sales receipt and make sure you have purchased the olympus sponsored card mfg.This is listed in the instructions. They get the job done pretty quick and pay for the return shipping.