This is by no means new, but Kurt Shiantaku's Blog has instructions to create a USB Drive for Vista installation.
Here is the summary:
Find a 4GB or larger USB drive
put it in your windows computer, note the size and letter of the USB drive.
bring up a command prompt.
enter: list disk (make note of what drive number the usb drive is based on size)
enter: select disk 1 (or whatever number your USB drive is)
NOTE: You must be 100% sure you are working with the correct drive here, or you could wipe your hard disk.
enter: create partition primary
enter: select partition 1
enter: format fs=fat32
(at this point I needed to remove and re-insert the USB drive, but your mileage may very)
Insert your Vista DVD, and note the drive letter it is using
then you need to enter the following:
copy d:\*.* /s/e/f e:\
changing d to the letter of your DVD source and e to the letter of your USB drive (if necessary)
you should then be able use this USB drive to install vista. This should also work for Windows 7.