I've been all over the net looking for a simple way to boot an OS install from a USB flash drive... Most of it was stupidly complicated and/or presented in a totally confusing manner....
Finally I just went my own way and here's what I came up with...
1) Insert the USB flash or hard drive into any convenient USB connector.
2) It will pop up under My Computer (XP) or your home folder (Vista or Win7)
Make note of the drive letter as you'll need that in a minute.
3) Right Click on the drive icon and select FORMAT.
Set it to fomat with NTFS, Default Alocation Unit Size and Quick Format, then click OK
4) When the format finishes copy all the files from the Win7 or Vista DVD over to the newly formatted pen drive.
5) Now go to Start->All Programs->Accessories->Command Prompt
6) Inside the Command Shell type the following sequence, substituting the letter of your drive for the Z in the example...
BootSect /nt60 Z:
7) That's it... you now have a bootable OS installer on a USB drive.
You can also take this a little further and use the same process for booting XP and Win2000 installers from USB drives... Just copy the boot folder from a Win7 or Vista DVD to the USB drive and use this sequence instead...
BootSect /nt56 Z:
Now you can boot pre-vista installers from the pen drive.
... I hope this clears up some of the confusion.