Not sure when this happened, but MS has a tool on Codeplex that will copy a bootable iso to a USB flash drive and make it bootable. I haven’t tried it, but it’s nice to finally have a purpose-built tool for the job..
Have a look here:
Windows 7 USB/DVD Download Tool
Note: the comments say it works with windows 8 as well – probably works with server 2008 r2 as well.