When it comes to embedded please be aware that there are some glitches still being worked out between VMware and the server manufacturers:
If you are new to ESX/ESXi then I'd go with the installable version especially if you've already got the server and it has mirrored drives already. The only benefit for us in going with embedded is that it's cheaper and uses less power than having mirrored drives. That's it. embedded USB is a less proven technology and a more complex setup and may take just as much time to deploy as the installable (see the posting above for a perfect example of the added complexities and deployment times - getting 2 company's support teams to not point fingers is challenging enough). I'd go with the ESXi version though either way, for sure, because that seems to be the direction VMware wants to go in the future (sans Service Console) and the quicker you get acclimated to that world the better. The fact that you can download and deploy a Remote Command Line VM (which to me just sounds like a service console) makes ESXi a no brainer in my opinion.
Also the idea with the embedded USB is that it's "in the firmware" so you'd expect a failure as likely as you'd expect a failure in the BIOS. Sure, it happens, but vendors don't go to the trouble of having redundant firmware (well, okay I guess some do). Regardless the failure rate isn't like HDD. Still it's not a bad idea to by a spare USB device or 2 and keep them in stock for when/if a physical failure occurs (make sure you preconfigure them for your environment so all you have to do is pop it in, maybe change a hostname and ip address, and you're back in business. And hey, the whole idea with an ESX envionrment in the first place (at least for us) is that any one ESX node can fail and we still have capacity to run all our VMs on n-1 esx nodes until we get the faulty one fixed and back online. You've got redundancy built-in at the server-layer (at least you should).
As for how to fix a faulty USB drive (if the fault is with the software on the flash and not a physical problem): Your vendor shipped the server with a "Recovery CD" or else they made a mistake. Dell does it. HP does it. IBM does it (in fact, IBM ships them in 2 flavors: buggy and not buggy 
).
Seriously though, we're excited about the embedded version despite some hiccups we're experiencing right now. I wasn't brave enough to recommend we go totally HHD-less because I like having "sandbox" space to move things around and our SAN space is too expensive to use it as a sandbox. We ordered our HS21-XM blades each with a single HDD with the understanding that anything stored on them is junk/expendable/etc. I want to say we could have done mirrored drives but would have had to give up something else in the blade (perhaps we couldn't have had 32GB of RAM in each or something). Anyway, we decided everything that mattered was on the SAN so mirrored didn't matter. HDD's in IBM blades aren't hotswappable anyway, so even if you have mirror drives and one goes bad, at some point you have to power it down just to replace the bad drive so mirrored doesn't buy you true HA in an ESX/IBM blade environment. ESX Vmotion and HA more than makes up for that tradeoff though.