Yes that's normal. In that mode the mSD card is simply seen as an external drive by the PC, and the Garmin itself is inactive. You can only get out of that mode by disconnecting and reconnecting the USB lead (preferably do the usual USB things to disconnect cleanly!).
In the 'other' (default) connect mode, that is 'Garmin' mode, nothing will work unless you have the Garmin USB driver installed on your PC, and the Garmin is not seen as an external drive (but some specialised software will see it).
In any case, for map transfer, it's much better to take the card out and put it in a card reader - the Garmin is only USB1.1 which is painful when handling map-sized files. You can get by without ever using the Garmin connected in 'USB link' mode.
The card can be FAT or FAT32, and the only map the GPS will see is one called gmapsupp.img placed inside the /Garmin/ directory.