“An invalid parameter was passed to a service or function” when using a flash drive with Windows 8 inside VirtualBox

Delete your VM xml files on Hard Disk. They are located by default in C:\Users\YOUR_NAME\.VirtualBox\Machines.

After deleting, you'll still receive strange erros messages in Virtualbox. This is because some info about your vms are inside C:\Users\YOUR_NAME\.VirtualBox\VirtualBox.xml.

If you don't mind losing some global configuration in your VirtualBox, just delete this file. Virtualbox will create another if it doesn't exist.

If you just want to remove a specific VM, you have to edit Virtualbox.xml in some xml editor (notepad is fine. notepad++ is better since it has syntax highlighting).

You'll find these fields:

<MachineRegistry>
  <MachineEntry uuid="UUID" src="Machines\MACHINE_NAME\MACHINE_NAME.xml"/>
</MachineRegistry>
<MediaRegistry>
  <HardDisks>
    <HardDisk uuid="UUID" location="HardDisks\DISC_NAME.vdi" format="VDI" type="Normal"/>
  </HardDisks>
  <DVDImages>
    <Image uuid="UUID" location="C:\IMAGES\IMAGE.iso"/>
  </DVDImages>
  <FloppyImages/>
</MediaRegistry>

Remove the MachineEntry from the desired VM. If you just have one VM and want to remove everything, just leave the tags empty. For example:

<MachineRegistry/>
<MediaRegistry>
  <HardDisks/>
  <DVDImages/>
  <FloppyImages/>
</MediaRegistry>

...and you're done. I just tested everythong here and it works flawlessly. If you want to avoid problems, backup your xml configuration files from VirtualBox and specific VMs.

(I didn't mention about snapshots, but I believe it's the same principle.)

For Windows, see this article : Boot your USB Drive in VirtualBox.
For Linux, the same approach is described in : How to boot from USB in virtualbox on Ubuntu.

The approach is to attach a physical drive to a virtual machine using the VBoxManage command-line tool that comes bundled with VirtualBox. You can then boot your virtual machine from the attached Physical drive.

Alternatively, and only for Windows, Linux Live USB Creator (formerly uSbuntu) is a free software for Windows that allows you to create a bootable Live USB key with a Linux on it. It offers the option of automatic virtualization using portable VirtualBox to directly run Linux in Windows without any configuration nor installation.