It is standard procedure for the 512 mb to be blank. I don't know why you think it is corrupt, but if you put it in your laptop before you program it you should see 512 mb. If you don't see that and you cannot format it, it is probably corrupt.
The last one I installed Nortel did not send a install disk. You have to download the software and create your own install disk. After you creat a install disk and run the install, there should be 4 partitions on it. 1 fat and 3 vxworks partitions. you will only be able to see the fat partition on your pc. You can use a larger disk, I've used a 2 gig microcenter flash until I could get a nortel santioned one with no problem. Nortel sent out a bulletin, that said they would not support it if you used a flash drive not provided by them.