For this write-up, I am assuming that your DVD drive is drive 'D:" and your USB drive is drive 'E:". Please substitute the correct drive letters where necessary.
Run CMD.EXE and type the following command.
use the above determine the disk number of your USB drive; it will probably be the one that is listed in MB instead of GB and should be close to the size of the USB drive you are using; i.e. 3855MB for a 4GB flash drive.
Substitute the drive number determined by the list disk command for the 'x' in the following command:
select disk X
create partition primary
select partition 1
The above commands re-partition your USB drive and format it as a FAT32 file system. Next we will make the USB drive bootable by using the 'bootsect' program found on the Windows Vista/2008 DVD:
Change directories to over to the Windows 2008/Vista DVD drive.
bootsect.exe /nt60 E:
One the above completes, you can close the command window.
Using Windows explorer, copy ALL of the contents of the DVD to the USB drive. This can also be done from a DOS prompt with XCOPY, but XCOPY can take 30+ minutes where a Windows copy will took me about 10 minutes.
After all is done, plug in the USB drive into the system you are trying to setup, boot and go into BIOS (usually press DEL or F1/F2 during bootup- but watch the bootup screen as this can be different on various systems). In BIOS, find your 'boot order' and make sure the USB device is above the hard drive in the list.
Boot and enjoy!