I have had problems with using stuff from PendriveLinux.com myself.
So have many others.
You should have no problem removing casper-rw partition from the HDD. Use Gparted.
You should be able to simply shrink, (to the left), the FAT32 partition on the flash drive and create a new ext2 partition labeled casper-rw.
Probably better to start over following my advice above.
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