The drives will be very much smaller true capacity, with firmware reporting a false capacity. This can initially work with FAT32, since the File Allocation Table is located at the beginning of a drive, and you'd be able to store something, until the drive fills up and writes either don't happen and the firmware lies about it, or the new data overwrites previous data.
NTFS places the Master File Table further into the drive (about 15% from the start). For example with the 250G drive the MFT would be supposed to start around the 37GB point. So if the drive is actually 16GB or even a 32GB inside, there is probably actually no MFT in existence, or it has wrapped around and overwritten the start of the drive, so there's no file structure to recognize. Either way cannot function.
The NTFS Optimization policy won't affect the ability to format, and as its placement under the Write caching and Safe removal category indicates, just determines whether Windows will use write caching for that drive, which demands safe removal procedure to avoid possible data loss. It's not recommended to set Optimize for Performance on removable drives like flash drives, as it makes it more likely they'll be corrupted by an accidental removal.