I was struggling to install Ubuntu 9.04 (Jaunty Jackalope) using the USB drive as I was not having any CD media. I tried couple of methods which required me to copy syslinux etc in order to build USB bootable Ubuntu disk from scratch.
There is another way which I just found out, its quite strightforward and works out of box :)
UNetbootin allows you to create bootable Live USB drives for a variety of Linux distributions from Windows or Linux, without requiring you to burn a CD. You can either let it download one of the many distributions supported out-of-the-box for you, or supply your own Linux .iso file if you've already downloaded one or your preferred distribution isn't on the list.