I have had great success with UltraISO to make bootable CD's and DVD's. It can create virtual drives as well.
http://www.ezbsystems.com/ultraiso/main.htm1. After installing, open the ISO in UltraISO from the File menu.
2. Select, write the disk image from the Boot Menu. Be sure, you select the correct drive for your flash drive.
3. After the image has been written to your flash drive, select the Xpress Boot option.
4. Then select Write New Drive Boot Sector and then select Windows Vista / 7.
Once that is complete, your flash drive should be bootable. Once tested, you can convert the flash drive to NTFS under Windows and select the UltraISO's Xpress Boot option and perform step 4 again, above.
Let me know if you have any questions or problems.
Good Luck,
Rich