Hello Steven,
Answers inline. :)
One thing to note about using the flash drive option is you need a good 4gb flash drive free of any files before selecting that option. The RT Seven Lite lacks the option to reformat flash drives.
The USB flash drive will need to have enough total space available (empty or full) for the image to be burned/extracted to it. RT Seven Lite will format (step 16E) the drive before doing so though.
Apparently it's not going to allow the new iso to be written with two errors seen. The first is any partition is seen as using up the entire drive space with the insufficient drive space message. Once cleaned with DiskPart and "raw" it won't see the flash drive present.
Yep, The USB drive cannot be RAW, or it will not be seen just like any HDD and Windows 7. If it's RAW you must format it first to create a partition/volume on it before it is recognized.
The other options for selecting the iso itself were greyed suggesting the write to flash drive may have to be from the start.
Yep, if you want to change a option like that, you will have to close and reopen RT Seven Lite to start over.
Hope this helps,
Shawn