I have a 1GB Rally2 and I don't think it's U3 compatible. However, I would rather NOT have U3 capability in a drive, as the technology has many bugs and glitches (and loads slowly) from what I have read in forums online.
Here is a link to the U3 support forum; you can see a lot of ppl are having problems with the technology:
http://www.u3community.com/viewforum.ph...3&sid=a9441e3f4838985c923be7096e11267e
Besides, any regular USB drive can be made to run a lot of programs off it...PStart is a great launcher program, and there are portable versions of many popular programs (i.e. Trillian, Gaim, Openoffice, Firefox, Opera, etc, etc, etc.)
Also, the Rally2 is a very fast drive, so the 4GB deal is indeed pretty hot.
For comparison I got my 1 GB for $20 ish after rebates from the egg.