“Do I have a faulty unit,”
No, it was designed that way to support a Microsoft Windows 8 requirement. However, SanDisk has stopped making them that way. See http://forums.sandisk.com/t5/All-SanDisk-USB-Flash-Drives/Models-configured-for-Fixed-Disk/m-p/306011#M6244
“is there a firmware update to fix this,”
No.
“will I have to RMA my stick?”
Yes, or return it to seller.
See if this helps you create a bootable flash drive: http://www.techsupportalert.com/content/create-bootable-usb-key-thumb-drive-windows-vista7-command-line.htm
