I have an 8GB FAT32 formatted USB which is Write-Protected. I am unable to format it using the Disk Utility since all the options are "grey-ed" out and unresponsive. How do i fix this?

The Erase button sure looks live to me.

Click the item above it called "8GB Sandisk..." and then a Partition tab should appear. You can then use this to fully re-partition the drive. The grayed options you see in the current window are just those for running disk repair and permissions repair routines. These do not apply for formatting and partitioning a drive.

Ah. Okay, you didn't have the Erase or Partition tabs selected before.

Look for a small slide lock on the drive. Some of them have that and the drive may be in the locked position.

Hmm, that's very odd. I have seen this issue a few times on these forums, but can't remember what the solution was. The drive is very simply setup for Windows with an MBR partition table and the FAT32 file format. Why OS X thinks is locked is a puzzle.

I was going to suggest a Windows computer, but that obviously isn't a solution, either. If this is a new drive, I'd take it back to the store and get a different one.