Create a new NTFS (type 7 in linux) partition and set it as bootable. Then simply copy the contents of your Windows 2008 iso to the drive and create a Windows compatible MBR on the USB boot drive.

# cfdisk /dev/sdx
# mkfs.ntfs -f /dev/sdx1
# mount -o loop win2008.iso /mnt/iso
# mount /dev/sdx1 /mnt/usb
# cp -r /mnt/iso/* /mnt/usb/
# lilo -M  /dev/sdx mbr

The windows instructions I copied from the following website http://bramp.net/blog/create-bootable-windows-server-2008-usb-stick I had a look at these instructions first before I was able to replicate the process under linux and produce the instructions above. I have included the windows instructions here for completeness.

Select the USB device from the list and substitute the disk number below when necessary. In this example Y:\ is my mounted image or physical DVD and X:\ is my USB device

C:\> diskpart
DISKPART> list disk
DISKPART> select disk x
DISKPART> create partition primary
DISKPART> select partition x
DISKPART> active
DISKPART> format fs=fat32
DISKPART> assign
C:\> xcopy Y:\*.* /s/e/f X:\

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