I have tried to make bootable USB Flash drive from Windows 7 installation medium. After running ms-sys with -7 option, my attempt to boot the Flash resolved in the message: "Kernel file is missing from the disk" ( more info: http://support.microsoft.com/kb/155892 ). After few hours of struggle I had managed to get it work. I had to boot Windows 7 installation on DVD, then run bootsect to fix the BOOTMGR and MBR.
"bootsect.exe /nt60 /fixmbr D:"
(where D: is the drive letter of USB Flash drive under Windows 7 installation program).
After running this command everything started to work as expected. I don't know if this is a bug or a know limitation of ms-sys as I haven't found any information about this problem.