I had this ridiculous issue also, and found that most of the "fixes" involved removing everything USB related. As I was trying to install via USB, that really wasn't an option.
Eventually, I stumbled upon something that seems to be reliable and might help other people.
Now, pay attention, because it's extremely complicated!! I mean, Windows 7 is totally confused, clearly there's something very involved going on, right?
Well, try this insanely difficult procedure:
after booting and selecting the language, but before clicking the "Install" button, remove the USB drive, wait a second, then reinsert it.
Then you can proceed to the custom setup, create your partitions and Windows will create the blah-blah-blah that it needs and everything will be fine. For me, I've tried this 5 times on two different PC's with the same USB stick, and as long as I remove the USB drive (mine is a Patriot 16GB) and then reinsert it sometime before I get to the partition creating part, everything is fine.
Hopefully, this might help some other poor soul trying to install from USB.
It's pretty bloody sad that this got through QA... I mean, boot off a USB pen drive? How difficult is that to test? And the two places I've tried it are pretty vanilla machines, nothing terribly complicated or multiple devices (1 HDD, 1 DVD) machines. Pretty sad indeed.
Hope this helps someone.
CraigL