This problem has been seen in a few situations, but generally using BlockRAM for the scratch space is the common cause.
Situation 1:
It was noticed that Flashwriter hung when using MicroBlaze version 7.20x. This problem can be resolved by initializing bootloop into the bitstream.
Situation 2:
Flashwriter may fail or hang with large files when using BlockRAM as the scratchpad space. In some situations Flashwriter appears to complete, but the flash memory contents are all FF's after a point in the memory. The solution for this issue is to use external memory such as SRAM or DDR memory for the scratchpad space.