Hello, the Sync option is supposed to only copy the files from the external USB drive to the internal Live Hub drive, as you noticed, a folder named “USB_Sync” is created that should have all of the files. Have you tried doing a power cycle (turn off/on) the WDTV? For more information check the link below.
If you cannot access your files from the USB hard drive or the WDTV hub, it is possible that the data is corrupted. To be sure, try scanning the USB hard drive using a data recovery program, using Google you should be able to find several options, also see if the following link helps. Let me know how it goes.