Can I use Lion Thumb Drive as normal USB pen drive?

Yes; as a Microsoft FAT-format volume. It's probably already in that format as most external storage devices such as traditional hard disk drives, flash disks or key drives or USB sticks arrive that way, and OS X can use FAT directly. Plug it in, and you're good to go.

If you want to erase and start over with a particular storage device – to reformat the storage as FAT – then use Disk Utility, in the Applications > Utilities folder, and select the formatting option.

But if you're not going to use the storage on Windows (without having to reformat it back to FAT) and if want to use it to best advantage, I'd reformat Windows FAT or NTFS volumes over into the HFS+ volume structure; to reformat the storage using the native file system of OS X.

As for how to reformat as FAT... From the Disk Utility help:

"You can use Disk Utility to format a disk to use with a Windows computer.

Notice: Formatting a disk erases all the files on it. Copy any files you want to save to another disk before formatting the disk.

Open Disk Utility, in the Utilities folder in Launchpad.

Select the disk you want to format for use with Windows computers.

Click Erase, and choose one of the following from the Format pop-up menu:

If the size of the disk is 32 GB or less, choose MS-DOS (FAT).

If the size of the disk is over 32 GB, choose ExFAT.

Type a name for the disk.

The name’s maximum length is 11 characters.

Click the Erase button, and then click Erase again."

Yes.

You might not have to do anything, though. Most of these widgets arrive FAT-formatted, and OS X works just fine with that.

This is OS X. Plug the widget in. The worst that'll happen is a message indicating some form of "I can't read that..." dialog. If the format is recognized and assuming everything is recognized and working after you plug the widget into the USB, then you should see an icon for the device appear on the desktop or in the left navigation of Finder, depending on how you've configured OS X.

But in general, yes, OS X can format and can use Microsoft FAT-format volume.

Try it.

Do make sure you aim at the correct device with the format command, of course.

Yes

Are you sure about that, MrHoffman?

My Lion USB Install Drive is marked as read-only, and Disk Utility won't give me the option to reformat the drive.

Ok; I hadn't realized that was the Lion distro disk. My bad. No. Sell it, and use the proceeds to buy some cheap USB disks.

Well, you can use it to install Lion on any compatible system. Beyond that... not a lot. Saving it for a few years and hoping it becomes a collector's item seems viable 🙂

There are lots of people every day asking where they can get Lion, but since Apple has removed it from the Apple Store, it not easily available. Maybe you can actually sell it via eBay, Crags List, etc...