The .iso file is an image of an optical storage device and as such cannot be read as a file by most BIOSes. You can do two things:
- Use a partitioning tool to make the USB key "bootable", mount the .iso file as though you had inserted it as a CD and copy all the files over to your USB key (I have never been able to get this method to work)
- Use the Microsoft tool designed just for this job: [ur]lhttp://store.microsoft.com/Help/ISO-Tool[/url]
I have successfully used method 2. to install Windows 7 to my S10e. Give it a go and post back if you come across any other problems or need some advice on a particular step.