Unless you've backed stuff up, don't format emulated or SDcard0! SD Card 0 is what the phone uses to simulate an SD Card when you plug it in to your PC (in very basic, laymans terms).
What happens when the card is inserted and you connect the phone to your PC, do 2 drives appear? If you head to Settings -> Xperia Connectivity -> USB Connectivity, what's the USB Connection Mode?
I've just reread one of the posts, you say it's not picking up 2 SD Cards, but both those cards work fine in another handset, I wonder if the issue is hardware as opposed to software then?