EDIT 2009/12/11: Microsoft Provides a tool to do this for you – Windows 7 USB/DVD Download Tool. See the Microsoft Store Help on the ISO-Tool (http://store.microsoft.com/Help/ISO-Tool).
It surprised me to find that there are very few dead-simple guides to creating a bootable USB thumb/pen/flash drive for a Vista and/or Windows 7 installation. I cobbled together the following from VistaPCGuy and another source I don’t remember right now.
This will walk through the steps to create a bootable USB flash drive for the purpose of installing a Vista or Windows 7 OS. These instructions assume that you have a computer with Windows Vista installed on it.