Why is FAT16 limited to read-only with TrueCrypt on Snow Leopard?
I have used TrueCrypt 7.1a on Mas OS X 10.6.8 with OSXFUSE 2.3.8 with no problems.   MacFuse is dead.  TrueCrypt's official Mac installer 7.1a installs OSXFUSE as did 7.1.  Not sure how you installed TrueCrypt but if not with the Mac installer, then uninstall what you have (including MacFuse) and install using the installer. 

Also make sure you have read/write/ownership of the TC container file on the disk.