Installing Windows 7 from a USB drive?

http://pcsupport.about.com/od/windows7/a/install-windows-7-usb.htm

You have to set up the USB drive. It's pretty simple though, basically you make it bootable and then copy the install DVD contents on it. There's also an official Microsoft tool do to that, but I found it doesn't always work well. In any case, here it is: clicky.

Yep, download the tool and image.
Install tool
Run it and make USB stick
Boot from USB stick
Install Windows

Meh , get windows 8. People say its shit , but actually its like windows 7 , just using less system resources and booting faster.

The Win7 USB Download tool linked in first post doesn't always work (in my personal experience), so I have always used a different method.
Follow this guide and it will work 99.9% of the time: http://www.intowindows.com/bootable-usb/
P.S I have never installed Windows 7 or 8 from a DVD - always USB :)
P.S.S Once you make the USB drive bootable, you don't have to do it ever again, it stays bootable unless you use bootsect.exe to remove the mbr off the drive. P.S.S you can skip format the drive within windows instead of using diskpart, that way it's faster, but make sure to follow all the other steps.

http://www.poweriso.com/tutorials/how-to-make-win7-bootable-usb-drive.htm --> This works like a charm

USB Universal Installer for single boots and Xboot for multiple OS boots

Use Novicorp WinToFlash. It prepares the USB flash for installing, and copies install files from Win7 Install DVD. And it's pretty easy - literally couple clicks, and you've got yourself a USB stick with an install =)

Windows 7 USB/DVD tool, the easiest way to make Win7 install "disc" on pendrive.