This guide assumes that there is no access to a DVD drive. It also assumes an MSDN subscription. If you do not have a subscription, but can get the win 7 iso, the process is the same. If you have the Win 7 DVD, skip the iso steps and copy the pertinent files from the DVD.
Requirements:
*USB Flash Drive (Minimum 3GB)
Prep:
-Download the Windows 7 Ultimate .iso file from MSDN HERE
-Download Virtual Clone Drive HERE (to open the iso without burning)
Mount Windows 7 iso
To save the trouble of burning the iso, you can simply mount it on a virtual drive.
1. Install Virtual Clone Drive – This is my favorite utility for mounting iso files, but extracting the iso with WinRar should work as well
2. Right click on the downloaded iso file and select “Mount (Virtual Clone Drive)”
3. Now your iso image is virtually mounted as though it was a DVD in your computer
Formatting USB
1. Plug-in your USB flash drive to USB port and move all the contents from USB drive to a safe location on your system.
2. Open Command Prompt with admin rights. Use any of the below methods to open Command Prompt with admin rights.
*Type cmd in Start menu search box and hit Ctrl+ Shift+ Enter.
Or
*Go to Start menu > All programs > Accessories, right click on Command Prompt and select Run as administrator.
3. You need to know about the USB drive a little bit. Type in the following commands in the command prompt:
First type DISKPART and hit enter to see the below message. 
Next type LIST DISK command and note down the Disk number (ex: Disk 1) of your USB flash drive. In the below screenshot my Flash Drive Disk no is Disk 1.
4. Next type all the below commands one by one. Here I assume that your disk drive no. is “Disk 1”.If you have Disk 2 as your USB flash drive then use Disk 2. Refer the above step to confirm it.
Below are the commands you need to type and execute one by one, hitting enter after each.
SELECT DISK 1
CLEAN
CREATE PARTITION PRIMARY
SELECT PARTITION 1
ACTIVE
FORMAT FS=NTFS
(Format process may take few seconds)
ASSIGN
EXIT
Don’t close the command prompt as we need to execute one more command at the next step. Just minimize it.
Bootable USB Drive
1. Check the drive letter of the mounted iso file. In this guide I will assume that your mount drive letter is “G” and USB drive letter is “H” (open my computer to see the correct lettering).
2. Maximize the minimized Command Prompt in the 4th step. Type the following command, hitting enter after each.
G:
(making sure you are in the root directory, which should read g:\>, type the following:)
CD BOOT
BOOTSECT.EXE /NT60 H:
Where “H” is your USB drive letter. Once you enter the above command you will see the below message.
3. Copy your Windows 7 DVD contents to the USB flash drive.
Your USB drive is ready to boot and install Windows 7. Install as normal, put in your cd key, and install all drivers as necessary after it boots into windows.
The only thing you need to change the boot order at the BIOS to USB from the HDD, just run the boot selection menu at startup.
You are done!
External Links
This guide is a modified version of:
http://forum.eeeuser.com/viewtopic.php?id=76690
A guide from Microsoft Technet, with Video:
http://technet.microsoft.com/en-us/magazine/dd535816.aspx
