FWIW, I have absolutely no problem running WHDLoad games off my thumbdrive using Deneb - so am surprised to hear you're having bad luck. WHDLoad itself is in Sys:C of course, but the games are loaded externally via thumbdrive on my A3000 setup.
I think it depends what games you are playing with WHDLoad.
Have you ever tried for example Cannon Fodder or Stardust ? I can't get them working from USB stick or if the poseidon is online.
In what filesystem have you formatted the usb stick, FAT,FAT32 or what ? There's something strange about mine, it flashes few times after a game is loaded, shouldn't PRELOAD option load all the game data to ram: before starting ?
And I tried editing the WHDLoad.prefs as miamiga told, no luck