How to Create a Bootable Windows 7 Installation USB Flash Drive

Step 1. Format the USB Flash Disk

Run CMD (elevated) and type:

    diskpart
    list disk (*now find your USB disk number, you'll find it by its size)
    select disk 1 (*if your USB is disk 1)
    clean
    create partition primary
    select partition 1 (*this is 1, no matter what number is your USB disk)
    active
    format fs=fat32 (or ntfs, works with both)
    assign
    exit

Note: Don't type the things in parentheses above!!

Step 2. Copy Windows 7 or Vista's DVD content to the Flash Disk

Still on CMD, assuming your dvd is drive d: and your usb is drive e:

xcopy d:\*.* /s/e/f e:\

You're done. Works perfectly.You'll make the fastest install ever.

Reference:
http://www.sevenforums.com/tutorials/2432-usb-windows-7-installation-key-drive-create.html