This issue keeps coming back so I decided to document the 2 possible solutions.
SCENARIO #1 – USB Partition not set to active:
The first one is caused by an USB not having its partition set to active. You can use diskpart or Windows Storage Manager to set the USB partition to ACTIVE. A few people blogged about how to do it with diskpart:
SCENARIO #2 – BOOTSEC.exe
This is the most common issue. The Windows 7 USB/DVD Download Tool (WUDT) will go to 99% and fail. All the source was copied to the USB but is it not bootable. This is because the tool is trying to use bootsec.exe and it can’t find it.
SOLUTION: Copy bootsec.exe to the tools installation folder: (e.g. C:UsersusernameAppDataLocalAppsWindows 7 USB DVD Download Tool) Repeat the process and it will complete successfully.
ALTERNATIVE: Open CMD. Type “bootsect.exe /nt60 ?:” and replace the question mark with the drive letter of your USB device.