I stumbled upon this blog as one of the first hits, and amazingly it was very easy to get Windows booting up on USB. It supports Windows XP/2003/Vista/2008/7 and even Windows 8 beta!
For best results, it's a good idea to use the target OS to create the bootable image.
For example, if you're setting up a bootable Windows 7 image, install WinToFlash on a Windows 7 computer and set it up from there.
- Download WinToFlash and extract it.
- Insert or load the Windows setup disc into a drive
- Open up "WinToFlash.exe"
- Run through the first start wizard
- When it's done, click on the "Advanced mode" tab
- Select "Transfer <Source Windows> setup to USB drive"
- Click "Run"
- Make sure the drive settings are correct and skim the formatting settings (default settings work fine)
- Click "Run" and wait
Just make sure the BIOS settings are correct (they're different for each brand of motherboard so look it up for what you have)