I wonder if they meant 'lossless' rather than lossy? You see, nearly all jpeg pictures are lossy by design. Typically, saving as jpeg throws away 90% of the image data, but we don't perceive that when viewing. That's the whole point of jpeg. So it's a bit odd to say '
Hey, we don't recognise lossy jpegs. Please reformat ' when in reality practically every jpeg file is lossy.
Lossless jpeg exists as a file format, but hardly anyone uses it. There are better file formats to preserve quality. There's also something called interlaced jpeg which was used when internet speeds were limited such as the old dial-up modem system.
It can be frustrating trying to get some of this stuff to work with AV gear. It's useful to remember that DVD players, TVs, home cinema systems and the like aren't as flexible as a PC or laptop, so you have to have all your dominoes lined up properly before things work. It sounds like you might have covered some of those bases already, but lets recap just in case
Unless your manual says otherwise, then the following basic conditions apply...
1) The USB drive generally needs so have a capacity of less that 32Gb. i.e you can't use a 64Gb, but a 16Gb or 8Gb would be okay
2) The drive can't be one that uses a custom- or built-in driver file
3) It should be formatted by a Windows PC, and either formatted to FAT32 or NTFS file format
4) There should be no more than 600 files/folders on the drive
5) Each jpeg file should end in .jpg and not .jpeg
6) Each jpeg should be under 2Mb in size
7) Lossless and progressive scan jpegs aren't supported
8) There may also be a limit on the pixel size of each file i.e. 1600x1200. If you have a camera that takes (or creates) very high resolution jpeg files then you might need to reduce them in size so the player can cope
For any more assistance we could do with knowing the model number of your LG DVD player