Some time ago I wrote a post about installing Windows 7 from USB drive. Procedure wasn’t too complicated but it did require going into dark command line and playing with always risky DISKPART tool.
There is no need to do that any more since Microsoft released tool that will do that for you. You just need to download Windows 7 USB/DVD Download tool executable and run it. After short setup you are ready to go. In case of Windows XP, you will additionally need to install Image Master API (it will download and install itself – Internet connection is required).
Procedure is easy – just pickup .iso file, select destination (DVD or flash drive) and wait a little.
I could say that it would be nice to have that inside of Windows 7 itself, but that would be just nitpicking.
[2009-10-11: Tool is not available anymore. Microsoft pulled it from it’s site to check whether some GPL code was reused. From the looks of it, Microsoft did broke GPL license in this matter. Couldn’t company with that many developers find one competent enough to make this program or decent enough to keep original license?]
[2009-12-10: It took a while, but tool is available once again.]