Issue With Reformatted 8GB Cruzer Thumbdrive

I have a 8GB Cruzer thumb drive that has the U3 launcher removed.

I just formatted it using FAT, and it shows a capacity of just 49mb.

Is it likely the drive is corrupted?

Try formatting as FAT32.

A U3 drive has 2 partitions, and Windows can only see the 1st one.  If you used the U3 removal function than you should have access to the whole drive.  If you used some other means than the data partition is still hidden.