Windows Vista and Windows 7 can be installed via a bootable USB drive as well. And the installation would be much easier and faster than installation via DVD. Windows Server 2008 & Windows Server 2008 R2 also can be installed via USB drive except installation of Windows 7 & Windows Vista .Initially Windows Vista/7 DVD or installation source (setup backup files stored on local hard disk) & a 4GB USB 2.0 Storage device would be required. You can follow the steps to install Windows Vista/7 from USB Drive.
1. Plug your USB storage device and run CMD and execute the following commands one after another.
o Diskpart Run Disk partition utility
o List disk To get disk index that is used to perform disk partitioning.
o Select disk 1 Selects disk to perform disk partitioning.
o Clean Flush your existing all USB drive’s partitions.
o Create partition primary Creates a partition as primary partition.
o Format recommended Format your USB drive with recommended parameters. (No need to worry about file system format)
o Active Set the partition as active to hold bootmgr.
o Exit To quit Diskpart utility

2. After executing the above commands simply copy all Windows Vista/7 files from DVD/Backup storage to USB storage device.
3. Change boot settings from BIOS and set it to boot with your USB drive, you can install Windows Vista/7 via bootable USB storage device. That is it.
Note: For boot problems try Fixing your USB Storage drive with the command I:\Boot\Bootsect.exe /NT60 I: where I: is the drive letter of USB storage device