One of the great things about Windows Vista/7 is that you can install it from a USB drive. Of course you have to have the original bootable ISO file to prepare your USB drive. And you also need a 4GB or bigger USB drive for this.
Here are the steps:
1. First mount the ISO image to a virtual drive. Let the drive letter of the virtual drive be X
2. Download MBRwiz (32bit or 64bit version depending on your current working OS). Then extract the file to some folder. Let’s assume you extracted it to root, i.e. C:
3. Plug in the flash drive to the PC and format it with NTFS file system. A quick format will do the trick. Let’s assume that the drive letter of the flash drive is Y.
4. Open command prompt (Run –> cmd). Browse to C: (where you extracted MBRwiz or MBRwiz64). Enter the following commands. (replace mbrwiz with mbrwiz64 where appropriate)
mbrwiz /list
* This will list out the drives in your PC, and note down the “number” of your flash drive. The number of my drive was “2” as shown in the screenshot below.
mbrwiz /disk=N /active=1
* N is the drive number of the flash drive you found earlier. This will make your flash drive active.
(click to see large image)
5. From command prompt, browse to X: which is where you mounted the ISO to. Use these commands:
CD boot
bootsect /nt60 Y:
* Y is the drive letter of the flash drive. This will make your flash drive bootable.
6. Now copy all the files from drive where you have mounted the Win7 ISO (that’s X:)
7. Now reboot your computer and get into your BIOS screen and select USB drive as your boot drive.
8. If every thing goes fine, Your Windows 7 Installation should start from your USB drive. 
Happy Windows 7 to you folks
The original article can be found here. It has some issues, and I corrected them and updated few other points.
Updated:
After copying the files from the Windows 7 x64 build 7068 to my 16GB flash drive, this is what the drive properties showed.
I will install and update how fast the installation was. Stay tuned. But first, I need to have dinner and watch an episode of BSG season 4. 
Edit 2:
Ok installed it. And guess how long it took form the start of boot into the setup and initial log in to windows with a usable desktop!? A whopping 9 minutes and 28 seconds!!! That’s about half the time taken by the DVD setup! Woohoooo!!!!
Filed under: PC Software | Tagged: Installation, USB Flash Drive, Windows 7
You call that 2 hour long eating frenzy DINNER???
Huh!
It takes for ever for you to eat!
Hope one day your *wife* will do something about it !!!
It only takes hours for my dinner when the dinner is crap! Well, you know how often that happens! lol
Thanks for the guide. It is a good feeling reading a corrected article that is most up-to-date.
Things that could go ‘wrong’ for a newbie:
1. Despite the fact that format is a Quick Format it will take some time to create the new filesystem in the USB so if you are worried that the formatting process is kind of stuck, don’t worry.
2. Do not mount the downloaded x64 ISO in a x86 PC and panic when you cannot run the command with bootsect. Remember to mount a x86 ISO first in order to do the bootsect command. Be sure to remount the x64 ISO later.
Are you serious about the 2nd point? I didn’t know that.
Edit:
Wow… I can’t believe this, I kept gettinghttp://social.technet.microsoft.com/Forums/en-US/itprovistadeployment/thread/022386ba-a445-44ba-97f7-d8ba4b6cc54b
I am retrying the whole setup now with x64 system.
I failed this method in a x64 computer too. This is crazy.
http://social.technet.microsoft.com/Forums/en-US/itprovistadeployment/thread/022386ba-a445-44ba-97f7-d8ba4b6cc54b
I can’t verify #2 until I get this right.
Using diskpart this method worked correct:
http://kmwoley.com/blog/?p=345
Thanks for this easy-to-follow guide. Worked perfectly!