I have set up a 1Gb. USB as a Knox Vault, but when I insert in in my computer it appears as a locked drive. When I click on it I get the greyed out message that the vault is now safely closed and it vanishes. It is not accessiblew in the sidebar, nor does it appear in Disk Utility. Even though it is in the USB slot it is no longer mounted. What is going wrong? Other USB drives seem to work OK. This one also seemed OK when not set up as a Knox Vault.

When you say it appears as a locked drive, does it look similar to this?
http://img.skitch.com/20080317-gwegph4ig4sqbe2h41k2hpa9g9.png

If so, something is amiss with the folder permissions. External drives are normally set up to ignore permissions.

You could try quitting Knox, erasing the USB drive with Disk Utility and then reformatting it again as a vault with Knox. Let me know how it works out.