Hi Robert,
When you have followed through Daniel's and Fred's suggestions, and you still see the 'Use SD Failed' message, it would be worth disconnecting any USB device such as the Wifi and Bluetooth dongles and an other USB device and then do another power down and up. That reduces the complexity of the analysis.
I have two B2s at home and I have used the 'Use SD' function on both of them as a test today and they both switched and rebooted without any problems. After the reboot the WebUI 'Settings & Status' showed 0 tracks, 0 albums and 0 artists, which is correct. Then I used 'Use HDD' and the B2s automatically rebooted and went back to 20461 tracks, 1512 albums and 620 artists which is correct.
I am also unclear as to what you mean when you say 're-indexing' , so if you could provide a brief description as to what this is then that could help us to understand what might be happening.
Regards,
Peter.