That's how I do it and I think it's the easiest and fastest way :
USB Windows 7 Installation Key Drive - Create
Step 1. Format the USB Flash Disk
Run CMD (elevated) and type:
list disk (*now find your USB disk number, you'll find it by its size)
select disk 1 (*if your USB is disk 1)
create partition primary
select partition 1 (*this is 1, no matter what number is your USB disk)
format fs=fat32 (or ntfs, works with both)
Note: Don't type the things in parentheses above!!
Step 2. Copy Windows 7 or Vista's DVD content to the Flash Disk
Still on CMD, assuming your dvd is drive d: and your usb is drive e:
xcopy d:\*.* /s/e/f e:\
What exactly was the error you got ?