Where did you get the .ISO file from? If you got on the Internet, it's most likely not going to work. Microsoft has scrubbed most of the downloadable ISO image files for all versions of Win7 & Win8/Win8.1. I've yet to create one that works with any of the ISO files available in 2015. In 2014 there were Win7 ISO files that still worked on both DVD & flash drive media. Some of my colleagues here have been able to create a Win10 ISO file, from an existing Win10 system; but, sadly, I have not been able to duplicate this on any testing hardware I have available.
If you do get it to work, please share your solution with us.
Nice job, there nichos! I've yet to be able to do this on 8.1. I'll give it a try using the ISO image from your link.
You mentioned a 7mb CD-R; I think you meant a 7GB CD-R, or DVD-R, neither of which is correct. CD-R's are 700MB and much too small to contain the 8.1 ISO image file. A DVD-R would have contained the 8.1 ISO image file as a DVD-R disc is 4.7GB. The 8.1 ISO image file is just under 4GB, so it would have fit onto a DVD-R blank disc, but not a CD-R blank disc. This is also why you couldn't get the bootable image to work on a CD-R disc!!
Lastly, the 8.1 ISO image file ONLY puts back Windows 8.1, and not all the driver files for audio, video, BIOS, chipset, network, wifi, webcam, monitor display, etc. etc. You can do this by going to your PC manufacturer's website and downloading all the drivers for 8.1 for your model PC. [for example: support.dell.com or support.hp.com]. This typically takes 1-2 days and requires a high-speed internet connection. If you haven't done so, you should still do it. It actually works better if you install all the drivers for your model PC prior to installing programs, but it should still be able to get most of your internal devices to work ok. No one may have told you this, or you knew about it and just didn't reference it, but it's and important point to be aware of.
Not sure what you mean, since you've already marked this Thread SOLVED, and stated that you created the Win8.1 flash media.
I might mention that when I tried your link to the Microsoft site, it did not work as that link/site ONLY will create media if you are running Win7/8/8.1 which I do not have on my desktop system. I have Vista, so I got an error message when I tried following their download instructions. I do have other Win7 systems, so will try that later on.
Your main issue will be whether your ASUS Motherboard supports and provides Win8.1 drivers or not. You'll need to check the ASUS website as I mentioned in my previous post. Since you built it prior to the release of Win7, that Motherboard may not support Win8.1. If the ASUS website doesn't have Win8.1 drivers on their support site to download for your model Motherboard, it may not work under 8.1 or only partially work (even more frustrating). Since your Specs state you are running XP Home on that system, you are 7 releases of Windows back (14 years). The hardware you bought may not be compatible with 8.1; if you re-read the Microsoft link you sent us, notice the part about running the MS UPGRADE ASSISTANT. Have you done this yet with this system??? If not, you should run it; as it will tell you which devices and drivers ARE NOT COMPATIBLE with 8.1. You'll have to remove/replace the devices and or drivers (e.g.: Your Video Card or your RAM sticks), in order to complete the upgrade to 8.1 Furthermore, you'll need a legit Win8.1 Product Key License (or COA) to properly activate your 8.1 upgrade.
The bottom line, is that if ASUS hasn't made drivers available for Win8.1 on their website for your model Motherboard, chances are not very good that it will take the 8.1 upgrade, as the hardware is just too old. If that's the case, I suggest you replace the Motherboard with a more modern Motherboard (Win8.1 compatible), or just build an entirely new PC with more modern parts. This is a problem with upgrading older OEM PCs (OEM: name brand pre-built PCs such as Dell, HP, Gateway) as well; many older XP computers just can't be upgraded to work with Win8.1--mostly 2005 and older, as the hardware just won't support it. 10 years these days is the effective cutoff date for this type of upgrade. Your PC is not that old, but without native support from your Motherboard manufacturer for the 8.1 with drivers, it's not likely to work, sorry to say.