Microsoft provides a tool to do this,
Windows7-USB-DVD-tool.exe (946.78 kb)
Simply run this program and follow the four step instructions to create your bootable USB drive.
or you can do the following;
open command prompt and type diskpart, list disk, select disk #, clean, create partition primary, active, format fs=fat32 quick and your done.
Now you only need to copy the contents of your bootable dvd over or use winrar to extract the files from the iso image to your usb drive.